The American people are therefore entitled to share in the benefits and the profits. Banking needs to be made a public utility. (Photo: Twitter/@publicbankla)

When the Dodd Frank Act was passed in 2010, President Obama triumphantly declared, “No more bailouts!” But what the Act actually said was that the next time the banks failed, they would be subject to “bail ins”—the funds of their creditors, including their large depositors, would be tapped to cover their bad loans.

Many economists in the US and Europe argued that the next time the banks failed, they should be nationalized—taken over by the government as public utilities. But that opportunity was lost when, in September 2019 and again in March 2020, Wall Street banks were quietly bailed out from a liquidity crisis in the repo market that could otherwise have bankrupted them. There was no bail-in of private funds, no heated congressional debate, and no public vote. It was all done unilaterally by unelected bureaucrats at the Federal Reserve.

“The justification of private profit,” said President Franklin Roosevelt in a 1938 address, “is private risk.” Banking has now been made virtually risk-free, backed by the full faith and credit of the United States and its people. The American people are therefore entitled to share in the benefits and the profits. Banking needs to be made a public utility.

The Risky Business of Borrowing Short to Lend Long

Individual banks can go bankrupt from too many bad loans, but the crises that can trigger system-wide collapse are “liquidity crises.” Banks “borrow short to lend long.” They borrow from their depositors to make long-term loans or investments while promising the depositors that they can come for their money “on demand.” To pull off this sleight of hand, when the depositors and the borrowers want the money at the same time, the banks have to borrow from somewhere else. If they can’t find lenders on short notice, or if the price of borrowing suddenly becomes prohibitive, the result is a “liquidity crisis.”

Before 1933, when the government stepped in with FDIC deposit insurance, bank panics and bank runs were common. When people suspected a bank was in trouble, they would all rush to withdraw their funds at once, exposing the fact that the banks did not have the money they purported to have. During the Great Depression, more than one-third of all private US banks were closed due to bank runs.

But President Franklin D. Roosevelt, who took office in 1933, was skeptical about insuring bank deposits. He warned, “We do not wish to make the United States Government liable for the mistakes and errors of individual banks, and put a premium on unsound banking in the future.” The government had a viable public alternative, a US postal banking system established in 1911. Postal banks became especially popular during the Depression, because they were backed by the US government. But Roosevelt was pressured into signing the 1933 Banking Act, creating the Federal Deposit Insurance Corporation that insured private banks with public funds.

Congress, however, was unwilling to insure more than $5,000 per depositor (about $100,000 today), a sum raised temporarily in 2008 and permanently in 2010 to $250,000. That meant large institutional investors (pension funds, mutual funds, hedge funds, sovereign wealth funds) had nowhere to park the millions of dollars they held between investments. They wanted a place to put their funds that was secure, provided them with some interest, and was liquid like a traditional deposit account, allowing quick withdrawal. They wanted the same “ironclad moneyback guarantee” provided by FDIC deposit insurance, with the ability to get their money back on demand.

It was largely in response to that need that the private repo market evolved. Repo trades, although technically “sales and repurchases” of collateral, are in effect secured short-term loans, usually repayable the next day or in two weeks. Repo replaces the security of deposit insurance with the security of highly liquid collateral, typically Treasury debt or mortgage-backed securities. Although the repo market evolved chiefly to satisfy the needs of the large institutional investors that were its chief lenders, it also served the interests of the banks, since it allowed them to get around the capital requirements imposed by regulators on the conventional banking system. Borrowing from the repo market became so popular that by 2008, it provided half the credit in the country. By 2020, this massive market had a turnover of $1 trillion a day.

Before 2008, banks also borrowed from each other in the fed funds market, allowing the Fed to manipulate interest rates by controlling the fed funds rate. But after 2008, banks were afraid to lend to each other for fear the borrowing banks might be insolvent and might not pay the loans back. Instead the lenders turned to the repo market, where loans were supposedly secured with collateral. The problem was that the collateral could be “rehypothecated,” or used for several loans at once; and by September 2019, the borrower side of the repo market had been taken over by hedge funds, which were notorious for risky rehypothecation. Many large institutional lenders therefore pulled out, driving the cost of borrowing at one point from 2% to 10%.

Rather than letting the banks fail and forcing a bail-in of private creditors’ funds, the Fed quietly stepped in and saved the banks by becoming the “repo lender of last resort.” But the liquidity crunch did not abate, and by March the Fed was making $1 trillion per day available in overnight loans. The central bank was backstopping the whole repo market, including the hedge funds, an untenable situation.

In March 2020, under cover of a national crisis, the Fed therefore flung the doors open to its discount window, where only banks could borrow. Previously, banks were reluctant to apply there because the interest was at a penalty rate and carried a stigma, signaling that the bank must be in distress. But that concern was eliminated when the Fed announced in a March 15 press release that the interest rate had been dropped to 0.25% (virtually zero). The reserve requirement was also eliminated, the capital requirement was relaxed, and all banks in good standing were offered loans of up to 90 days, “renewable on a daily basis.” The loans could be continually rolled over, and no strings were attached to this interest-free money – no obligation to lend to small businesses, reduce credit card rates, or write down underwater mortgages. Even J.P. Morgan Chase, the country’s largest bank, has acknowledged borrowing at the Fed’s discount window for super cheap loans.

The Fed’s scheme worked, and demand for repo loans plummeted. But unlike in Canada, where big banks slashed their credit card interest rates to help relieve borrowers during the COVID-19 crisis, US banks did not share this windfall with the public. Canadian interest rates were cut by half, from 21% to 11%; but US credit card rates dropped in April only by half a percentage point, to 20.15%. The giant Wall Street banks continued to favor their largest clients, doling out CARES Act benefits to them first, emptying the trough before many smaller businesses could drink there.

In 1969, Prime Minister Indira Gandhi nationalized 14 of India’s largest banks, not because they were bankrupt (the usual justification today) but to ensure that credit would be allocated according to planned priorities, including getting banks into rural areas and making cheap financing available to Indian farmers. Congress could do the same today, but the odds are it won’t. As Sen. Dick Durbin said in 2009, “the banks … are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

Time for the States to Step In

Why are elected local governments, which are required to serve the public, penalized for shortfalls in their budgets caused by a mandatory shutdown, when private banks that serve private stockholders are not?

State and local governments could make cheap credit available to their communities, but today they too are second class citizens when it comes to borrowing. Unlike the banks, which can borrow virtually interest-free with no strings attached, states can sell their bonds to the Fed only at market rates of 3% or 4% or more plus a penalty. Why are elected local governments, which are required to serve the public, penalized for shortfalls in their budgets caused by a mandatory shutdown, when private banks that serve private stockholders are not?

States can borrow from the federal unemployment trust fund, as California just did for $348 million, but these loans too must be paid back with interest, and they must be used to cover soaring claims for state unemployment benefits. States remain desperately short of funds to repair holes in their budgets from lost revenues and increased costs due to the shutdown.

States are excellent credit risks—far better than banks would be without the life-support of the federal government. States have a tax base, they aren’t going anywhere, they are legally required to pay their bills, and they are forbidden to file for bankruptcy. Banks are considered better credit risks than states only because their deposits are insured by the federal government and they are gifted with routine bailouts from the Fed, without which they would have collapsed decades ago.

State and local governments with a mandate to serve the public interest deserve to be treated as well as private Wall Street banks that have repeatedly been found guilty of frauds on the public. How can states get parity with the banks? If Congress won’t address that need, states can borrow interest-free at the Fed’s discount window by forming their own publicly-owned banks. For more on that possibility, see my earlier article here.

As Buckminster Fuller said, “You never change things by fighting the existing reality. To change something, create a new model that makes the old model obsolete.” Post-COVID-19, the world will need to explore new models; and publicly-owned banks should be high on the list.

When I was a child, I heard my parents say that when we save our money it works for us. I remember having to dress up in my church clothes when I went to the bank to deposit my birthday checks or money I saved from my allowances.

These ideas that banks and Wall Street are secular versions of church, and that money works for everyone are deeply at play in our society today.

In the name of protecting the common good, Governors across the country have ordered people to stay at home, and all non-essential worksites shuttered. But aside from some states adopting short-term bans on evictions and foreclosures, no leaders have gone further in ordering the financial economy to “stop working” and set aside the primacy of their business interests for the common good by forgiving rents and waiving mortgage interest while deferring mortgage principal payments.

"If federal leaders and state governors fail to demand that banks and Wall Street pause too, efforts to shore up families with stimulus checks and business owners with paycheck protection, will be undermined, as those funds will pass quickly through the hands of families and into the already full pockets of Wall Street, deepening inequality and increasing the pain of the many, for the benefit of the few. "

The shut-down of much of our economy has thrown millions out of work and into a perilous place, because while much of the human economy of workers working, small businesses serving, and people shopping for their everyday needs, has been all but stopped, financial services firms continues to work hard, collecting monthly rents, mortgages and other debts. Some small business owners—restaurateurs, hair salons, clothing, book and hardware store owners have received government loans to keep paying their workers, they’ve received no similar protection from landlords demanding their monthly rent while their businesses are closed. This will wind up sinking many of the businesses we depend on and love. As the little virus attacks people’s bodies, the bigger disease of an overly powerful corporate capture of our economy continues to wreak havoc on families, small businesses, and communities long after the health crisis is resolved.

If federal leaders and state governors fail to demand that banks and Wall Street pause too, efforts to shore up families with stimulus checks and business owners with paycheck protection, will be undermined, as those funds will pass quickly through the hands of families and into the already full pockets of Wall Street, deepening inequality and increasing the pain of the many, for the benefit of the few.

As families scramble to get together their monthly mortgage payments, banks continue with business as usual. Last week, Federal Reserve Chairman Jerome Powell was asked by the David Wessell of Brookings Institution whether Big Banks would be allowed to continue to distribute tens of billions of dollars annually as shareholder dividends (half of which go to people in the top 1%), he replied, “That’s a perfectly normal thing in our capitalist system.” Normal has been thrown out the window for workers and small business owners, it should be for the titans of our economy as well.

Why is it that Governors can order workers to stop working, and small business owners to lock their doors, but not order landlords, bankers, and Wall Street investors to also suspend their activities, to pause as labor and the commercial sector have? Why do people have to sacrifice but not the owners of capital?

Some landlords have demonstrated compassion and solidarity with their tenants. New York City landlord Mario Salerno is one of them. At the beginning of April, tenants in each of Salerno’s 18 Brooklyn apartment building found notes taped to the door saying: “Due to the COVID-19 pandemic affecting all of us, I am waiving rent for the month of April, 2020. Stay safe, help your neighbors and wash your hands!!! Thank you, Mario.” When asked by the New York Times about the hundreds of thousands of dollars he stood to lose as a result of the rent forgiveness, Salerno said that was not important: “My concern is everyone’s health. I told them just to look out for your neighbor and make sure everyone has food on their table.” More landlords could follow Mr. Salerno’s example if they knew the mortgage payments that they owed on their rental properties could be deferred.

In contrast, forty large corporations, many of whom are controlled by Wall Street private equity funds, have bought up more than two million units of rental housing in the United States. So, far all have been silent on the issue of rent forgiveness. Most picked up their properties, often at fire sale prices and with the help of federal government assistance, after the 2008 housing crisis. Unless these powerful firms are ordered to put public health and family well-being before corporate profits, they are likely to again swoop in and extend their control of America’s housing stock even further as millions of families and smaller landlords lose their homes and businesses.

Ordering landlords and mortgage holders to change the terms of their contracts is not unprecedented. Following the 2008 housing crash, the Federal Home Ownership Refinance Program (HARP), gave mortgage holders the right to renegotiate their federally backed mortgages on more affordable terms. Its success allowed many families to keep their homes.

I haven’t gotten dressed up to go to the bank in more than half a century, it is time our leaders stop treating Wall Street like a church, and to instead demand the same sacrifices of capital that they have of workers and merchants.

Scott Klinger is Senior Equitable Development Specialist at Jobs with Justice and an Associate Fellow at the Institute for Policy Studies.

Our work is licensed under a Creative Commons Attribution-Share Alike 3.0 License. Feel free to republish and share widely.

Everyone can come up with their own list of what they consider to be essential and what they consider to be inessential. In my opinion the least essential of inessential services are tattoo artists. There are a lot of products and services in our mass consumer culture which are also frivolous and have nothing to do with what is essential or beneficial to human well being.. It seems that the most essential workers are the least paid while the least essential are well paid indeed. Is advertising really essential? You can look up everything you might want or need online using google or amazon. Why do you have to have some irrelevant product or service pounded into you by TV advertising? It's a historical relic. I record most programs so that I can fast forward through the commercials. If I watch a live program, I put it on pause while I do something else for awhile, and then I fast forward through the commercials. In my opinion everything advertised on TV, especially pharmaceuticals, is inessential. They should be prescribed by a doctor. It's the doctor's business to know which pharmaceuticals you need, not yours.

Are hedge funds essential? Is jewelry essential? Are the products of the wedding-industrial complex essential? Many people are having weddings during the pandemic without paying the tens of thousands of dollars that current weddings fashioned by the wedding-industrial complex demand. There are many frivolous consumer items which advertising insists that people need that they don't really need, that are completely inessential. Some are nice to have, but inessential, and some are downright destructive to peoples' health and welfare.

The most essential activity at this time in history is saving the planet from global warming. Production of renewable energy alternatives is absolutely essential. The provision of green infrastructure is absolutely essential. Fossil fuels need to be left in the ground. Getting rid of plastics which pollute the oceans and other waste products that aren't biodegradable is absolutely essential. Rethinking payscales for essential workers like agricultural workers and grocery store workers is essential. If these are the most essential workers, they should be paid more. The same goes for doctors, nurses, certified nursing assistants, the CNAs who do most of the caregiving at nursing homes. CNAs make little more than minimum wage and yet they are exposed to the coronavirus. What this means is that so much that is really essential now is either being ignored or very little money is being allocated to it while huge amounts of money are being allocated to fruitless and frivolous activities.

The most fruitless activity is war and the provoking of war. The trillion dollar annual budget of the military-industrial complex has been shown to be fruitless and meaningless when the real war is against a virus. Unhealthy conditions in poverty stricken areas of the world including refugee camps can breed disease which affects the whole world including "privileged" people in the more advanced nations. Poverty and disease need to be eradicated in all parts of the world. The military cannot do that. Oh, they can be repurposed a little bit to help out with a pandemic, but they can not really do the job that needs to be done. In particular they are vulnerable to the pandemic themselves and all of the weapons of war cannot protect them. The real war needs to be against poverty and disease which are the breeders of war and pandemics. The real war needs to be against global warming. The real essential workers are construction workers who need to be constructing advanced green infrastructure.

What is clear is that real essential workers need to be paid more which argues for a lessening of economic inequality. So much of the wealth is held by people who are absolutely inessential to the health, welfare and betterment of people all around the world. A Green New Deal needs to be prioritized. Wealth needs to be taxed to pay for it. New York state needs to tax Wall Street to make up for its budget deficit. Priorities, priorities. The helping professionals and care workers need to be given more respect and money. Taxing inessential workers like hedge fund managers is what needs to pay for it.

April 24, 2020

The Solution for New York State's Budget Crisis: A Wealth Tax on Wall Street

John Lawrence

There's a storm a'brewing between Governor Andrew Cuomo and Mitch McConnell, the Senate majority leader. New York is facing a $15 billion revenue shortfall due to the coronavirus. Cuomo wants the Federal government to fill the gap, but Mitch has said, "Let the states go bankrupt." McConnell has told the blue states,"Drop Dead." New York state is a democratic state which won't vote for Donald Trump so McConnell is now all concerned about the budget deficit. The solution lies in the fact that New York City, the richest city in the world is located in New York state. Wall Street, home of the biggest and richest banks in the world is located in New York City. JPMorgan Chase's CEO Jamie Dimon is a billionaire. Goldman Sachs' CEO, Lloyd Blankfein, is a billionaire. Wall Street banks have just been given $1.5 trillion by the Federal Reserve. Besides that between 2008 and 2015, the Federal Reserve contributed about $4.5 in quantitative easing (QE) to the big Wall Street banks.

In addition New York is the hedge fund capital of the universe. They are worth trillions of dollars. So a wealth tax on Wall Street billionaires, banks and hedge funds could easily fill New York State's budget gap. In addition to that consider Manhattan real estate. The median price of homes currently listed in Manhattan is $1,550,000. At $238 million, 220 Central Park South penthouse is the most expensive home sold in the U.S. Come on, Governor Cuomo. Just raise the property taxes on Manhattan real estate. Property tax is a wealth tax. A wealth tax on New York City assets could easily fill the budget gap. What are you waiting for? Democrats control the majority in both houses of the New York State legislature. No Mitch McConnell there. The state can just vote to raise taxes on billionaires, banks and hedge funds.

OK, here's the likely scenario. If Cuomo proposes a wealth tax on Wall Street banks, hedge funds and billionaires, all of which have received massive bailouts from the Federal Reserve, the affected parties will massively lobby New York state legislators and Republicans at the national level including Mitch McConnell. According to New York Public Radio in 2012:

Hedge funds, hedge fund executives, and their immediate family members gave $23.4 million dollars to state and local politicians from the start of 2005 through February of this year, according to a report released Wednesday by Common Cause New York, an advocacy group that campaigns for open government.

While this is the first time Common Cause has tracked these donations in New York, contributions from the hedge funds in federal campaigns leapt from only $2.4 million in 2000 to $19 million in 2008.

I'm sure the affected parties have contributed much more since 2012 and will ride McConnell's ass and ply him and other Republicans with money, and then Congressional Republicans will change their tune regarding bailing out New York state. The result will be that New York state will not have to tax Wall Street although 15 billion is just a small blip on one billionaires' balance sheet. Remember a billion is a thousand million. C'mon, Governor Cuomo, it's a no brainer.

April 19, 2020

Let's say a Wall Street bank has a mortgage that's been defaulted on. That qualifies as a "toxic asset" meaning the guy isn't paying his mortgage. The bank then pleads with the Federal Reserve to take it off its hands because the bank is running low on money that it thought would be coming in if the guy had made his monthly payments. So the Fed adds "liquidity" by saying to the bank, "Give me that mortgage. I will take it off your hands and pay you the full value of the amount borrowed, and then I will be the mortgage holder for the "toxic asset." So the bank is made whole, and the Fed is now the holder of the toxic mortgage. The Fed has "taken it on its balance sheet" and taken it off the balance sheet of the Wall Street bank. This is what happened during the Great Recession of 2008. It's what Quantitative Easing is all about. Theoretically, some day the Fed will sell this mortgage in the marketplace, but who wants to buy a mortgage that no one is paying either interest or principal on especially if the mortgagee is long gone. Instead the toxic asset disappears in what amounts to the Fed's black hole.

Although the Fed will do this for a bank especially for those banks that are too big too fail, they will not do this for Joe Blow. Joe blow, for instance, may have a toxic asset of $30,000 in credit card debt or $100,000 in student loan debt. Why couldn't Joe Blow approach the Federal Reserve and say please will you take this toxic asset off my hands? That would mean adding "liquidity" to Joe Blow's bank account by taking the credit card debt or student loan debt onto the Fed's balance sheet and paying off Joe's creditors. This would make the Fed Joe's creditor. Perhaps some day, when Joe is better off, the Fed might be able to move Joe's debt off its balance sheet and put it back on Joe's account. At least theoretically that could happen.

What is happening today with the coronavirus relief package and the stimulus checks is a variation on QE which amounts to QE for the people. Where is all the money coming from you say? Will it just be added to the deficit and the national debt, God forbid? Right now interest on the national debt is $479 billion. The more money the nation borrows, the more interest on the debt crowds out other items in the Federal budget like social security, Medicare and the military. But there is a neat little trick that is played between the Treasury department which issues the bonds that comprise national debt and the Federal reserve which has the aforementioned capacity to make debts disappear down a black hole.

Those toxic assets that the Fed took off of banks' balance sheets? Some of them were Treasury bonds. Now more than ever the Fed will be taking Treasury bonds off the big banks balance sheet for two reasons: 1) they can't be all sold in the open market because there are no buyers and 2) the US taxpayers will not have to pay interest on these bonds because although the government pays interest to the Fed on these bonds all profits the Fed makes are returned to the Treasury after deducting minimal expenses at the end of the year. So one hand really does wash the other or, if you prefer, the Federal government is playing a shill game with the Federal Reserve. The Federal Reserve monetizes the debt which is the same as saying that it disappears down a black hole on the Fed's balance sheet. The middleman in this whole operation is Wall Street since the Fed by law cannot buy Treasury bonds directly from the Treasury Department. So by monetizing the debt, the Fed is doing two things: 1) it is taking the pressure off of interest paid in the Federal budget and 2) it is guaranteeing that the Federal government will have whatever amount of money it needs to pay its bills without having to increase taxes.

Now this is good news for pandemic relief. Deficit hawks are muted because they know how this shill game is played, and it's no skin off their backs. The Fed essentially prints money (although it's doe with a couple of keystrokes on a computer) and bails out the whole economy. There is no inflation since unions which drove up the price of labor were essentially muted during the Reagan administration which saw most manufacturing jobs transferred to China. So then Fed can print away giving everyone a taste of a Universal Basic Income (UBI). (See Ellen Brown's accompanying article.) Since the cat is out of the bag there is no reason why this same game couldn't be played to relieve American consumers of student loan debt and credit card debt although you can get rid of credit card debt in bankruptcy. Not so for student loan debt.

Also money for infrastructure could be obtained this same way by having the Fed monetize the debt. This would create good union jobs according to Bernie Sanders. But this is exactly what the bond market and the Fed doesn't want - good union jobs - because that would create wage inflation. When wages go up prices go up, and the bond market would not be pleased because inflation eats up the yields on their bonds. What the Fed and the monied interest want is an economy in which workers are deeply indebted because that means a ton of interest going to the banks which are totally in cahoots with the privately owned Fed. If your a worker, the Fed is not really your friend. They are the banker's friend. The Fed was set up in the first place to bail out banks not American consumers. Now it is giving American consumers a taste of a bail out because the coronavirus presents a unique situation with everybody being out of work. When things get back to normal, the Fed will go back to just bailing out banks, and relieving pressure on the national debt.

April 12, 2020

Saudi Arabia and Yemen have declared a cease fire. Sailors are becoming infected on aircraft carriers. War planning requires groupings of military people. So has war become a luxury we can no longer afford? Are we really "all in this together"? Does the pandemic require cooperation among all nations since the pandemic doesn't respect national borders? Will the pandemic, when it's over, have changed the way human beings conduct their affairs in the world or will we get back to business as usual. If the pandemic engenders cooperation instead of rivalry among the nations of the world, does this mean that we will all be socialists or communists? Does it even matter?

If the pandemic makes us realize that war is a useless exercise with few benefits, will the US military-industrial complex be defunded. Will the money then go to health care workers, to Peace Corps and AmeriCorps workers who will attempt to bring clean water and modern sanitary systems to developing countries? Will there be a push to create more sanitary conditions in the world so that pandemics don't get started? Plagues and pandemics before have motivated people to build modern sanitary systems in places like London and New York in the 19th century where urban populations in close proximity created the conditions of cholera and bubonic plague. Is homelessness a social situation we can no longer afford?

Will the meaning of 'essential services' become normalized in the economy post corinavirus? What then will be considered essential and what could we live without? As long as there is no vaccine for coronavirus, new cases will continue to crop up even after the economy has "reopened." The flu epidemic of 1918 lasted 10 months and had several spikes. We can expect more spikes in the current pandemic until there are widespread vaccinations available. So what is essential? Sports events? Cruises? Rock concerts? Movie theaters? Now with Netflix and Amazon prime we can watch movies at home. Any movie we want to see. I'm catching up on all the great movies I've missed over the years. Last night I watched "To Catch a Thief" with Cary Grant and Grace Kelly. Free on Amazon Prime. The fidelity both video and audio was excellent on my smart TV. I have no need to go to a movie theater where I can't control the volume. Hint: they are too loud.

Perhaps now we can grasp the concept that cooperation among peoples and nations is more important than manufactured rivalries over some nation's form of government. Perhaps now we can grasp the concept that diplomacy is more important, getting along is more important and winning isn't everything. Maybe now public health and human rights can be seen as more important than having everyone pull themselves up only by their own bootstraps. Maybe we can get on with the business of cooperating to combat the real enemy - climate change and even future pandemics. Maybe we will bring the US infrastructure into the modern world with a Green New Deal. Maybe we can finally grow up and have a consensus about what is really important, what really matters. Maybe doctors, nurses, caregivers, and social workers will come to be seen as more important that Wall Street brokers, the Peace Corps and AmeriCorps as more important than the War Corps. As Governor Cuomo says, "Love will conquer all." Happy Easter.

April 07, 2020

Central banks remain the dealers of choice for addicted big corporations, private banks, and markets. In other words, given congressional (and Trumpian) sponsored bailouts and practically unlimited access to money from the Fed, Wall Street will, in the end, be fine. (Photo: Phillipp/cc/flickr)

To say that these are unprecedented times would be the understatement of the century. Even as the United States became the latest target of Hurricane COVID-19, in “hot spots” around the globe a continuing frenzy of health concerns represented yet another drop down the economic rabbit hole.

Stay-at-home orders have engulfed the planet, encompassing a majority of Americans, all of India, the United Kingdom, and much of Europe. A second round of cases may be starting to surface in China. Meanwhile, small- and medium-sized businesses, not to speak of giant corporate entities, are already facing severe financial pain.

I was in New York City on 9/11 and for the weeks that followed. At first, there was a sense of overriding panic about the possibility of more attacks, while the air was still thick with smoke. A startling number of lives were lost and we all did feel that we had indeed been changed forever.

Nonetheless, the shock was momentary. Small businesses, even in the neighborhood of the Twin Towers, reopened quickly enough while, in the midst of psychic chaos, President George W. Bush urged Americans to continue to fly, shop, and even go to Disney World.

Think of the coronavirus, then, as a different kind of 9/11. After all, the airlines are all but grounded, restaurants and so many other shops closed, Disney World shut tight, and the death toll is already well past that of 9/11 and multiplying fast. The concept of “social distancing” has become omnipresent, while hospitals are overwhelmed and medical professionals stretched thin. Pandemic containment efforts have put the global economy on hold. This time, we will be changed forever.

Figures on job cuts and business closures could soon eclipse those from the aftermath of the financial collapse of 2008. The U.S. jobless rate could hit 30% in the second quarter of 2020, according to Federal Reserve Bank of St. Louis President James Bullard, which would mean that we’re talking levels of unemployment not seen since the Great Depression of the 1930s. Many small companies will be unable to reopen. Others could default on their debts and enter bankruptcy.

After all, about half of all small businesses in this country had less than a month’s worth of cash set aside as the coronavirus hit and they employ almost half of the private workforce. In truth, mom-and-pop stores, not the giant corporate entities, are the engine of the economy. The restaurant industry alone could lose 7.4 million jobs, while tourism and retail sectors will experience significant turmoil for months, if not years, to come.

In the first week of coronavirus economic shock, a record 3.3 million Americans filed claims for unemployment. That figure was nearly three times the peak of the 2008 recession and it doubled to 6.6 million a week later, with future numbers expected to rise staggeringly higher.

As sobering as those numbers were, Treasury Secretary Steve “Foreclosure King” Mnuchin branded them “not relevant.” Tone-deafness aside, the reality is that it will take months, once the impact of the coronavirus subsides, for many people to return to work. There will be jobs and possibly even sub-sectors of the economy that won’t rematerialize.

This cataclysm prompted Congress to pass the largest fiscal relief package in its history. As necessary as it was, that massive spending bill was also a reminder that the urge to offer corporations mega-welfare not available to ordinary citizens remains a distinctly all-American phenomenon.

Reflections From the Financial Crisis of 2008

The catalyst for this crisis is obviously in a different league than in 2008, since a viral pandemic is hardly nature’s equivalent of a subprime meltdown. But with an economic system already on the brink of crashing, one thing will prove similar: instability for a vulnerable majority is likely to be matched by nearly unlimited access to money for financial elites who, with stupendous subsidies, will thrive no matter who else goes down.

Once the virus recedes, stock and debt bubbles inflated over the past 12 years are likely to begin to grow again, fueled as then by central bank policies and federal favoritism. In other words, we’ve seen this movie before, but call the sequel: Contagion Meets Wall Street.

Unlike in 2020, in the early days of the 2008 financial crisis, economic fallout spread far more slowly. Between mid-September of that year when Lehman Brothers went bankrupt and October 3rd, when the Troubled Asset Relief Program, including a $700 billion Wall Street and corporate bailout package, was passed by Congress, banks were freaked out by the enormity of their own bad bets.

Yet no one then should have been surprised, as I and others had been reporting that the amount of leverage, or debt, in the financial system was a genuine danger, especially given all those toxic subprime mortgage assets the banks had created and then bet on. After Bear Stearns went bankrupt in March 2008 because it had borrowed far too much from other big banks to squander on toxic mortgage assets, I assured listeners on Democracy Now! that this was just the beginning -- and so it proved to be. Taxpayers would end up guaranteeing JPMorgan Chase’s buyout of Bear Stearns’s business and yet more bailouts would follow -- and not just from the government.

Leaders of the Federal Reserve would similarly provide trillions of dollars in loans, cheap money, and bond-buying programs to the financial system. And this would dwarf the government stimulus packages under both George W. Bush and Barack Obama that were meant for ordinary people.

As I wrote in It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions, instead of the Fed buying those trillions of dollars of toxic assets from banks that could no longer sell them anywhere else, it would have been cheaper to directly cover subprime mortgage payments for a set period of time. In that way, people might have kept their homes and the economic fallout would have been largely contained. Thanks to Washington’s predisposition to offer corporate welfare, that didn’t happen -- and it’s not happening now either.

None of this is that complicated: when a system is steeped in so much debt that companies can’t make even low-rate debt payments and have insufficient savings for emergencies, they can crash -- fast. All of this was largely forgotten, however, as a combination of Wall Street maneuvering, record-breaking corporate buybacks, and ultra-low interest rates in the years since the financial crisis lifted stock markets globally.

Below the surface, however, an epic debt bubble was once again growing, fostered in part by record corporate debt levels. In 2009, as the economy was just beginning to show the first signs of emerging from the Great Recession, the average American company owed $2 of debt for every $1 it earned. Fast forward to today and that ratio is about $3 to $1. For some companies, it’s as high as $15 to $1. For Boeing, the second largest recipient of federal funding in this country, it’s $37 to $1.

What that meant was simple enough: anything that disrupted the system was going to be exponentially devastating. Enter the coronavirus, which is now creating a perfect storm on Wall Street that’s guaranteed to ripple through Main Street.

The Fed, the Casino, and Trillions on the Line

In total, the CARES Act that Congress passed offers about $2.2 trillion in government relief. As President Trump noted while signing the bill into law, however, total government coronavirus aid could, in the end, reach $6.2 trillion. That’s a staggering sum. Unfortunately, you won’t be surprised to learn that, given both the Trump administration and the Fed, the story hardly ends there.

More than $4 trillion of that estimate is predicated on using $454 billion of CARES Act money to back Federal Reserve-based corporate loans. The Fed has the magical power to leverage, or multiply, money it receives from the Treasury up to 10 times over. In the end, according to the president, that could mean $4.5 trillion in support for big banks and corporate entities versus something like $1.4 trillion for regular Americans, small businesses, hospitals, and local and state governments. That 3.5 to 1 ratio signals that, as in 2008, the Treasury and the Fed are focused on big banks and large corporations, not everyday Americans.

In addition to slashing interest rates to zero, the Fed announced a slew of initiatives to pump money ("liquidity") into the system. In total, its life-support programs are aimed primarily at banks, large companies, and markets, with some spillage into small businesses and municipalities.

Its arsenal consists of $1.5 trillion in short-term loans to banks and an alphabet soup of other perks and programs. On March 15th, for instance, the Fed announced that it would restart its quantitative easing, or QE, program. In this way, the U.S. central bank creates money electronically that it can use to buy bonds from banks. In an effort to keep Wall Street buzzing, its initial QE revamp will enable it to buy up to $500 billion in Treasury bonds and $200 billion in mortgage-backed securities -- and that was just a beginning.

Two days later, the Fed created a Commercial Paper Funding Facility through which it will provide yet more short-term loans for banks and corporations, while also dusting off its Term Asset-Backed Securities Loan Facility (TALF) to allow it to buy securities backed by student loans, auto loans, and credit-card loans. TALF will receive $10 billion in initial funding from the Treasury Department’s Emergency Stabilization Fund (ESF).

And there’s more. The Fed has selected asset-management goliath BlackRock to manage its buying programs (for a fee, of course), including its commercial mortgage and two corporate bond-buying ones (each of which is to get $10 billion in seed money from the Treasury Department’s ESF). BlackRock will also be able to purchase corporate bonds through various Exchange Traded Funds, of which that company just happens to be the biggest provider.

Surpassing measures used in the 2008 crisis, on March 23rd, the Fed said it would continue buying Treasury securities and mortgage-backed securities "in the amounts needed to support smooth market functioning.” In other words, unlimited quantitative easing. As its chairman, Jerome Powell, told the Today Show, “When it comes to this lending, we’re not going to run out of ammunition, that doesn’t happen.” In other words, the Fed will be dishing out money like it’s going out of style -- but not to real people.

By March 25th, the Fed’s balance sheet had already surged to $5.25 trillion, larger than at its height -- $4.5 trillion -- in the aftermath of the global financial crisis and it won't stop there. In other words, the 2008 playbook is unfolding again, just more quickly and on an even larger scale, distributing a disproportionate amount of money to the top tiers of the business world and using government funds to make that money stretch even further.

A Relief Package for Whom?

As in 2008, the most beneficial policies and funding will be heading for Wall Street banks and behemoth corporations. Far less will be going directly to American workers through tangible grants, cheaper loans, or any form of debt forgiveness.

By now, in our unique pandemic moment, something seems all too familiar. As in 2008, the most beneficial policies and funding will be heading for Wall Street banks and behemoth corporations. Far less will be going directly to American workers through tangible grants, cheaper loans, or any form of debt forgiveness. Even the six months of student-loan payment relief (only for federal loans, not private ones) just pushes those payments down the road.

The historic $2.2 trillion coronavirus relief package is heavily corporate-focused. For starters, a quarter of it, $500 billion, goes to large corporations. At least $454 billion of that will back funding for up to $4.5 trillion in corporate loans from the Fed and the remainder will be for direct Treasury loans to big companies. Who gets what will be largely Treasury Secretary Mnuchin’s choice. And mind you, we may never know the details since President Trump is committed to making this selection process as non-transparent as possible.

There’s an additional $50 billion that’s to be dedicated to the airline industry, $25 billion of which will be in direct grants to airlines that don’t place employees on involuntary furlough or discontinue flight service at airports through September. Right after the bill passed, the airline industry announced that more workforce cuts are ahead (once it gets the money).

Another $17 billion is meant for “businesses critical to maintaining national security,” one of which could eventually be White House darling Boeing. There’s also a corporate tax credit worth about $290 billon to corporations that keep people on their payrolls and can prove losses of 50% of their pre-coronavirus revenue.

More than $370 billion of that congressional relief package will go into Small Business Administration loans meant to cover existing loans and operating and payroll costs as well. Yet receiving such loans will involve a byzantine process for desperate small outfits. Meanwhile, the big banks will get a cut for administering them.

About $150 billion is pegged for the healthcare industry, including $100 billion in grants to hospitals working on the frontlines of the coronavirus crisis and other funds to jumpstart the production of desperately needed (and long overdue) medical products for doctors, nurses, and pandemic patients. Another $27 billion is being allocated for vaccines and stockpiles of medical supplies.

An extra $150 billion will go to cities and states to prop up budgets already over-stretched and in trouble. Those on unemployment benefits will get an increase of $600 per week for four months in a $260 billion unemployment expansion.

Ultimately, however, the relief promised will not cover the basic needs of the majority of bereft Americans. With Main Street’s economy sinking right now, it won’t arrive fast enough either. In addition, the highly publicized part of Congress’s relief package that promises up to $1,200 per person, $2,400 per family, and $500 per child, will be barely enough to cover a month of rent and utilities, let alone other essentials, for the typical working family when it finally arrives. Since disbursement will be based on information the Internal Revenue Service has on each individual and family, if you haven’t filed tax returns in the last year or so or if you filed them by mail, funds could be slower to arrive -- and don’t forget that the IRS is facing coronavirus-based workforce challenges of its own.

The Best Offense Is a Good Defense

The global economic freeze caused by the coronavirus has crushed more people in a shorter span of time than any crisis in memory. Working people will need far more relief than in the last meltdown to keep not just themselves but the very foundations of the global economy going.

The only true avenue for such support is national governments. Central banks remain the dealers of choice for addicted big corporations, private banks, and markets. In other words, given congressional (and Trumpian) sponsored bailouts and practically unlimited access to money from the Fed, Wall Street will, in the end, be fine.

If ground-up solutions to help ordinary Americans and small businesses aren’t adopted in a far grander way, one thing is predictable: once this crisis has been “managed,” we’ll be set up for a larger one in an even more disparate world. When the clouds from the coronavirus storm dissipate, those bailouts and all the corporate deregulation now underway will have created bank and corporate debt bubbles that are even larger than before.

The real economic lesson to be drawn from this crisis should be (but won’t be) that the best offense is a good defense. Exiting this self-induced recession or depression into anything but a less equal world would require genuine infrastructure investment and planning. That would mean focusing post-relief efforts on producing better hospitals, public transportation networks, research and development, schools, and far more adequate homeless shelters.

In other words, actions offering greater protection to the majority of the population would restart the economy in a truly sustainable fashion, while bringing back both jobs and confidence. But that, in turn, would involve a bold and courageous political response providing genuine and proportionate stimulus for people. Unfortunately, given Washington’s 1% tilt and Donald Trump’s CEO empathy, that is at present inconceivable.

"Lean and mean may be good for profits but not for Grandma," the author writes. (Photo: Joseph Prezioso / AFP via Getty Images)

If you or your loved ones become seriously ill during this pandemic crisis, either with Covid-19 or for any other reason, there may not be a hospital bed or life-saving equipment available for you. How can that be given that we spend twice as much on health care than any other country on Earth?

Maybe that’s just the way things go when a massive unexpected healthcare problem strikes. Yes, surely the government could have been better prepared by stockpiling more personal protective equipment and ventilators, given the pandemic guidance they received 15 years ago. But is it really possible for hospitals to have enough beds and costly equipment in times of crisis?

The fact is that between 1980 and today, 400,000 hospital beds have vanished from our system while Wall Street financed a bonanza of hospital mergers and acquisitions. Given population growth of 100 million over this period, this means that the number of hospital beds per 100,000 people in the US has fallen by more than half. In 1980 there was 595 hospital bed for every 100,000 people. Today there’s only 281 per 100,000.

Certainly some of those beds were removed because of changes in medical care. New surgical techniques have emerged that require shorter hospital stays. There also are more outpatient options today, and Medicare has changed its hospital reimbursement policies that have impacted the number of hospital beds. But entire hospitals have disappeared. In 1980 there were 3 hospitals per 100,000 people in the U.S. -- in 2019, only 1.9. (For sources see here and here.)

But aren’t mergers supposed to improve care through technological efficiencies and the sharing of medical know-how? Unfortunately, that’s not the case. A recent study published in the New England Journal of Medicine (January 2, 2020) found that “Hospital acquisition by another hospital or hospital system was associated with modestly worse patient experiences and no significant changes in readmission or mortality rates.“ Too bad for us.

Hospitals have not gotten better because that is not the point of all these Wall Street-driven mergers. The real and ever present goal is to extract as much wealth as possible from the hospital system to enrich big investors and CEOs. The extraction takes the form of ever rising executive compensation and ubiquitous stock buybacks. Hospitals are increasingly designed to make the rich richer, not to provide high quality health care to the rest of us.

The top seven hospital chains have amassed nearly a trillion dollars in sales over the past decade with more than $35 billion in net profits. Where does all that profit come from? From merging hospitals and cutting “excess” bed capacity and staffing to the bone.

Largest Hospital For-Profit Corporations

Sales ($billions)

Profits ($billions)

Stock Buybacks 2010-19 ($billions)

CEO Compensation

HCA HEALTHCARE INC

$387

$23.2

$13.5

$20,100,000

COMMUNITY HEALTH SYSTEMS INC

$152

-$4.5

$0.4

$7,024,719

TENET HEALTHCARE CORP

$149

$0.2

$0.9

$15,000,000

DAVITA INC

$108

$6.1

$6.9

$32,000,000

UNIVERSAL HEALTH SVCS INC

$87

$5.9

$2.3

$23,588,883

SELECT MEDICAL HOLDINGS CORP

$37

$1.3

$0.4

$8,201,031

ENCOMPASS HEALTH CORP

$30

$3.0

$0.5

$6,388,227

TOTALS, SEVEN HOSPITAL CHAINS

$951

$35.2

$24.9

$112,302,860

Stock Buybacks

In addition to high CEO salaries, private hospital corporations use stock buybacks to enrich themselves at the expense of hospital staffing, beds, and equipment. By using the company’s funds to buy shares in the open market, the price of those shares rises thereby enriching Wall Street investors and the CEOs who receive most of their compensation in stock options and grants. Just these seven companies squeezed nearly $25 billion from the hospitals over the past decade to pay for those stock buybacks.

A Wall Street Grab for Hospital Real Estate

In addition to stock buybacks, there is wealth to be extracted from the real estate under hospitals. Here’s one current example in Philadelphia:

Wall Street investor Joel Freedman bought Hahnemann Hospital in Philadelphia, a safety-net hospital with 400 beds and an E.R. that saw 40,000 patients a year. Two-thirds of patients admitted were Black or Latinx.

Freedman “had scant experience in day-to-day hospital management and displayed little patience with the executives he brought in to run the two hospitals.” He made no major capital investments to improve the hospital.

Less than 18 months after buying it, Freedman declared bankruptcy and shut down the hospital.

Valuable Real Estate Kept Out of Bankruptcy

Usually with a bankruptcy, all assets—land, buildings, equipment, etc.—are sold to meet financial obligations.

Hahnemann Hospital sat on valuable real estate in a gentrifying area of the city and Freedman managed to keep the land out of the bankruptcy—leaving him free to sell the land to the highest bidder.

Many believe that Freedman never seriously tried to save the hospital. According to the WHYY story, Eileen Applebaum, of the Center for Economic and Policy Research, said “she is worried that a separate sale of the Hahnemann property to a developer will lay a road map for private equity firms around the country: Buy older hospitals in areas that are gentrifying, separate the hospital from its real estate, let the hospitals go downhill, and then sell the real estate to the developers.”

So as we scramble to locate hospital beds and life-saving equipment during this pandemic, remember that we are fighting two diseases. The first is the pandemic that feasts on our bodies. The second is Wall Street that feasts on our health care system. Lean and mean may be good for profits but not for Grandma.

March 26, 2020

The $2 trillion coronavirus relief package is being held up because Republicans don't want to approve a provision giving unemployed workers $600 per week over and above their state unemployment benefits. This might actually give some workers more money per week than they were actually making when they were employed. Also gig workers such as me would be eligible for these benefits which makes Republicans absolutely apoplectic. My California unemployment benefits would be about $230 so $600. more would make my weekly take home $830 considerably more than what I usually make working about 30 hours a week. Republicans think this would be a total travesty of the free market system. But they miss the point.

What is necessary for the economy to keep working is for people to go out and spend money since consumption is 70% of GDP. Neel Kashkari, who was in charge of the $700 billion TARP bailout during the 2008 financial crisis said that the country would have been better off if the government had been "much more generous" to all homeowners, no matter how deserving they were. Instead, the country was overly generous to Wall Street banks no matter how undeserving they were. And that's just the crux of the matter. To keep the economy functioning the government has to be overly generous to average people who will go out and spend their money which contributes to the 70% consumption economy. The TARP program was supposed to help homeowners with their mortgages as well as the banks. It helped the banks, but fell far short of helping the homeowners.

"Tim [Geithner] thought he was smart enough to have it both ways; that he could protect the bank executives and stockholders and get the same result when they actually restructure the banks," Silvers told The Week. "And he was wrong." That choice also goes a long way towards explaining why, even though the crisis in the financial system itself passed rather quickly, the massive collapse in employment took 10 grinding years to repair. It's why 10 million American families lost their homes, and why, almost a decade later, the bank bailouts remain a source of simmering rage, nihilism, and distrust among voters.

"It was an extremely costly mistake," Silvers concluded. "In terms of homeownership, jobs, small businesses, and perhaps most of all the American people's trust in their government."

The Home Affordable Mortgage Program (HAMP), which was a major part of TARP, was designed to keep 4 million homeowners out of foreclosure. However, only about 1.6 million people were helped. The failure was not for lack of funding. Hundreds of billions of dollars was available and could have gone directly to help struggling homeowners who were being driven out of their homes, but “Treasury just sat on that money and didn’t do it,” Inspector General for the Troubled Asset Relief Program Neil Barofsky said.

So with that experience and that knowledge in mind, Democrats in Congress don't want to repeat the same mistake. They want money in the hands of the American people who will go out and spend it. Poorer Americans are more likely to spend any relief package given to them, and, if they end up getting more per week in unemployment benefits than they were making at their job, so much the better. The banks are already fully capitalized. Losing no time the Federal Reserve has already given $1.5 trillion to the banks and lowered interest rates to zero.

March 24, 2020

Among all the negative things that are happening because of the coronavirus, there is at least one positive thing: air pollution and the emission of greenhouse gasses (GHGs) is way down. The pandemic is shutting down industrial activity and temporarily slashing air pollution levels around the world according to satellite imagery. There are fewer cars on the roads, fewer airplanes flying, fewer ships at sea. The downturn in economic activity means that less power is being consumed; therefore, less coal is being shoveled into power plants around the world. It's a veritable demonstration that it is possible to reduce pollution, reduce global warming and in other ways have a cleaner, healthier planet.

Paul Monks, professor of air pollution at the University of Leicester, predicted there will be important lessons to learn. “We are now, inadvertently, conducting the largest-scale experiment ever seen,” he said. “Are we looking at what we might see in the future if we can move to a low-carbon economy? Not to denigrate the loss of life, but this might give us some hope from something terrible. To see what can be achieved. It seems entirely probable that a reduction in air pollution will be beneficial to people in susceptible categories, for example some asthma sufferers,” he said. “It could reduce the spread of disease. A high level of air pollution exacerbates viral uptake because it inflames and lowers immunity.” Agriculture could also get a boost because pollution stunts plant growth, he added.

One of the largest drops in pollution levels could be seen over the city of Wuhan in central China which was put under a strict lockdown in late January. The city of 11 million people serves as a major transportation hub and is home to hundreds of factories supplying car parts and other hardware to global supply chains. According to NASA, nitrogen dioxide levels across eastern and central China have been 10-30% lower than normal.

This period, when the pandemic is not under control, is an opportunity to think differently about the economy. What are essential goods and services? Definitely we need food, clean water and sanitation services. We need garbage collection. People need enough money to supply essential needs for themselves. We could also ask what are inessential needs? Some of these are going to sporting events, going to movie theaters especially when we can watch movies at home, going to music events at arenas especially when we can listen to music at home, going on cruises. With the increase of capabilities for working from home, going into the office is not a necessity for a lot of workers. This can be increased with the result that there will be fewer cars on the road, less rush hour traffic and less GHG emissions. Getting cars off the road is a long term goal for a green economy. This would mean fewer car sales, but it would be better for the environment.

We should ask what are essential activities to keep people healthy and safe and think about doing away with other activities which don't increase the health and welfare of human beings. After dithering for years over the homeless situation, homeless people are being put up in motels and hotels post haste as a public health issue. This is a positive development and goes to show that the homeless situation could have been ameliorated years ago if we had the will to do it. The provision of money to average Americans will not hurt the economy. It will only help the economy. During the 2008 Great Recession trillions of dollars were given to the banks to bail them out. Much of this money went to bail out investors and hedge funds which had made huge bets on the economy. Many of these bets paid off, and their bets were covered in full by the Federal Reserve when the individual Wall Street banks couldn't cover them. Obviously, these rich people did not need that money to continue to cover their own 'essential needs' or the needs of their families. It was money given to gamblers while Joe six pack got zilch. We don't need an economy which caters to rich gamblers and showers them with money when they bet the economy will go down bringing suffering to millions.

At this point the Fed has the capability of bailing out the average American family especially if they have lost their jobs so they can continue to eat and pay rent. This support for average Americans will function also to stabilize the economy and maintain GDP but at a lower level. Perhaps the 70% level that consumption contributes to GDP cannot be maintained, but this might actually be a good thing by eliminating things that are not essential to the health and welfare of the population while driving air pollution and greenhouse gasses down. Neel Kashkari President of the Minneapolis branch of the Federal Reserve siad on 60 Minutes that the Fed needs to be "overly generous" to the average family, something they weren't when the economy tanked in 2008. The Fed is committed to not letting any banks or major US businesses go under. They could just as well make sure that no American families go under. Andrew Yang's idea of a Universal Basic Income (UBI) not only helps families survive. It will help the economy survive.

March 23, 2020

Who would have thunk it? China has taken capitalist financial methods to the next level with the result that it is progressing more rapidly in material abundance and a consumer society than the proto-capitalist nations of the world: the US and Europe. Sure, politically, they are an authoritarian nation. But that expedites their development since all institutions are on the same wavelength. In particular their central bank, the People's Bank of China (PBC) funds infrastructure projects all over the world. This keeps China a full employment society. They put all the Chinese people to work building infrastructure which expands the money supply in a very widespread way. Essentially the PBC provides loans for all these projects which means it creates the money just as US banks do when they create loans or the Federal Reserve does when it provides "liquidity" to the markets through quantitative easing (QE).

The Federal Reserve has actually expanded the range of market interventions it can do. It used to be that the Fed could only set interest rates. That was it. Now it can buy corporate bonds, state and local bonds and give money directly to corporations to keep them afloat. In fact it can act more like the PBC which interacts directly in the Chinese economy. The Fed can take debts directly onto its balance sheet where they may remain forever. This is exactly what it did in the 2008 financial crash. It provided cash directly to banks in return for mortgage backed securities and Treasury bonds thus providing liquidity to the banks so that they would not go under. Now the banks are well capitalized, and, since they know that the Fed stands ready to bail them out again, they have no worries. In fact the term "bail them out" is actually a misnomer at this point. It can be replaced with "provide them with cash" as necessary.

There was an interesting interview on 60 Minutes with Neel Kashkari, Obama's Assistant Secretary of the Treasury, who was in charge of the Troubled Assets Relief Program (TARP) during the Great Recession. He noted that TARP, which was supposed to help out actual people with their mortgages did not go far enough. They were too stingy with it, and not very many people got helped. He says that this prolonged the recession. Instead of being stingy as they were, they should have been "overly generous." That is the lesson he learned. So now in the coronavirus recession, his advice is that the Fed should be overly generous in providing relief to actual everyday people and not just to banks. At this time the banks are doing very well, thank you.

It is well known that money is created by the banks themselves when they create a loan which they do with a couple of keystrokes on a computer. Why is this possible? Because money has no relationship to gold or any other precious metal any more. That's why it's called "fiat money." So what bankers and economists are realizing (which has been the secret of China's success all along resulting in their bringing 800 million people out of poverty in 40 years) is that the US central bank, the Federal Reserve can do the exact same thing. It can create fiat money just like the banks do, like Wall Street does. The only concern is that money so created would lead to inflation, but, as Kashkari noted, there was no inflation even after the Fed created trillions of dollars in 2008 most of which went directly to bankers, hedge funds and rich individuals and not to the average American. Now Kashkari, who is President of the Minneapolis branch of the Federal Reserve, is saying that the Fed could provide liquidity to the American people and not just to the banks. How this will probably happen is by Congress passing a bill on the "fiscal side" as they say. Then they will sell more Treasury bonds to cover the increased deficit. Wall Street banks will buy them since other countries are decreasing their purchase of US debt, and then the Fed will provide liquidity (cash) to Wall Street taking the Treasury bonds onto its balance sheet where they will reside forever probably. This is why the national deficits and debt are no problem because the Fed can print money to cover them ad infinitum. It's as if the Fed provided money directly to the US economy, but, by law, they have to do so indirectly.

Ellen Brown understood this possibility long before Neel Kaskari had his "awakening."

America’s chief competitor in the trade war is obviously China, which subsidizes not just worker costs but the costs of its businesses. The government owns 80% of the banks, which make loans on favorable terms to domestic businesses, especially state-owned businesses. Typically, if the businesses cannot repay the loans, neither the banks nor the businesses are put into bankruptcy, since that would mean losing jobs and factories. The non-performing loans are just carried on the books or written off. No private creditors are hurt, since the creditor is the government, and the loans were created on the banks’ books in the first place (following standard banking practice globally).

Precisely! So no need to worry about another Great Recession or Depression. The US could effectively provide a Universal Basic Income (UBI) to its citizens indefinitely as Andrew Yang proposed.

[B]ecause the Chinese government owns most of the banks, and it prints the currency, it can technically keep those banks alive and lending forever.…

It may sound weird to say that China’s banks will never collapse, no matter how absurd their lending positions get. But banking systems are just about the flow of money.

Spross quoted former bank CEO Richard Vague, chair of The Governor’s Woods Foundation, who explained, “China has committed itself to a high level of growth. And growth, very simply, is contingent on financing. Beijing will come in and fix the profitability, fix the capital, fix the bad debt, of the state-owned banks … by any number of means that you and I would not see happen in the United States.”

There is no reason why the US could not emulate China. From an economic point of view QE or a UBI would not be inflationary as long as the dollars provided to the system were either invested in new plants and equipment, infrastructure or consumption. What is needed now is about $10 trillion worth of Green Infrastructure, a Green New Deal funded indirectly by the Fed. This money can be provided to the American people and not only rich billionaires as was done in 2008 and as China is providing directly to its workers who are kept busy building infrastructure in the Belt and Road initiative. It would also ease economic inequality and not induce inflation as long as the money is widely distributed.

March 21, 2020

"In this recovery we face a clear choice: bail out the fragile fossil financial system and lock in the next climate crash, or keep building a resilient green financial infrastructure that will serve as a stable foundation going forward."

Protesters picketing outside a JP Morgan Chase branch on Manhattan in November 2019 as part of a growing national movement to hold the bank accountable for its central role in funding the global fossil fuel industry. (Photo: Erik McGregor/LightRocket via Getty Images)

Stop the Money Pipeline, a coalition that aims to end Wall Street's funding of climate destruction, is calling on Congress to hold the line against the financial industry—and give it no special deregulatory treatment—as the federal government responds to the economic fallout from the coronavirus.

"Now is not the time to relax rules on financial institutions' ability to weather future crises, particularly the climate crisis, the impacts of which continue to unfold even as we deal with COVID-19," Moira Birss, climate and finance director of Amazon Watch, said in a statement Friday.

"Instead, policymakers should be bolstering the resilience of the financial system to safely handle the climate shock that is barreling towards us," Birss added, "by requiring banks, asset managers, and other financial institutions to responsibly phase out financing and investments in fossil fuels and transition to a green economy."

@gilliantett Our Stop the Money Pipeline coalition of 90+ organizations is calling on policymakers to use this moment to strengthen the financial system to handle climate risks: https://t.co/bkOspPPt2C

President Donald Trump has already signed a pair of bills related to the pandemic and federal lawmakers are negotiating a third trillion-dollar coronavirus package. Trump and his allies are also pursuing a multibillion-dollar bailout of the U.S. oil industry, which has been impacted by the global outbreak and a price war.

"In this recovery we face a clear choice: bail out the fragile fossil financial system and lock in the next climate crash, or keep building a resilient green financial infrastructure that will serve as a stable foundation going forward," said Rainforest Action Network (RAN) climate and energy senior campaigner Jason Opeña Disterhoft.

"Wall Street has already shown us they will choose profit over prudence," Opeña Disterhoft continued. "Lawmakers, regulators, and civil society must ensure that we make the safe choice for all of our futures."

Specifically, Stop the Money Pipeline is calling for:

Restricting the ability of financial institutions to invest in fossil fuel extraction and production.

Repealing the authority for banks to own physical assets like oil refineries, pipelines, tankers, power plants, and coal mines and trade commodities, specifically including such fossil fuels as crude oil, fracked gas, and coal.

Establishing a Community Climate Investment Mandate: Financial institutions with a federal charter have a duty to invest a certain percentage into climate change mitigation and resilience efforts.

Incorporating climate risk into the prudential regulatory and supervisory framework for systemically important financial institutions.

The demands came just a few days after the release of Banking on Climate Change: Fossil Fuel Finance Report 2020—which, in the words of RAN climate and energy lead researcher Alison Kirsch, "paints a deeply disturbing picture of how financial institutions are driving us toward climate disaster."

The report, from RAN and other groups, found that since the 2015 Paris climate accord, 35 big banks have collectively poured $2.7 trillion into the fossil fuel industry. The top funder was JPMorgan Chase, a key target of Stop the Money Pipeline, at nearly $269 billion. Behind Chase were three other U.S. banks: Wells Fargo at $198 billion, Citi at $188 billion, and Bank of America at $157 billion.

Some of the environmental activists behind Stop the Money Pipeline's new demands for Congress highlighted the report's findings in their calls to action on the coronavirus.

"Big banks have continually increased their funding for fossil fuels in the years since the Paris agreement, putting our communities and our economy at risk of massive disruption due to climate change," said Sierra Club campaign representative Ben Cushing said. "As Washington and communities across the country are working to address the [COVID-19] pandemic, it's critical that Congress ensures that relief efforts go to protecting the most vulnerable and in need, not corporate polluters or those financing their operations."

Author and 350.org co-founder Bill McKibben was arrested while protesting at a Chase branch for the campaign's launch in January.

"Wall Street's record is horrible—they've been pouring money into fossil fuels even after the Paris climate accords," McKibben said Friday. "If bankers need the help of society, then society can demand that they commit to helping with the other grave crisis we face."

The calls for Congress to consider the climate crisis while addressing the COVID-19 pandemic aligned with comments from other activists in recent weeks, as the virus has infected over 258,000 people and led to over 11,000 deaths worldwide. As Common Dreamsreported Wednesday, a growing chorus of advocates is urging political leaders to seize the opportunity to both revive the world's economy and battle the climate emergency by implementing a global Green New Deal.

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The Federal Reserve's Role is to Bail Out Wall Street, Not the American People

by John Lawrence, March 21, 2020

The purpose of the Federal Reserve is to bail out the banks, not to bail out you. During the Great Recession of 2008, the Fed gave trillions to the banks. The average Joe that couldn't pay his mortgage lost his home to foreclosure. Banks only keep a portion of their money as reserves. They create loans out of thin air. If someone can't make payments on a loan, the bank will foreclose. If the loan is secured by property, that property will become the bank's property. If at the same time more people want to take their deposits out of the bank than the bank has in reserves, the bank is in trouble. That's where the Federal Reserve comes in. It floods the bank with liquidity meaning the cash to pay out to the bank's customers who want their money back. At the same time the Fed may take the bank's non performing loans onto its balance sheet. No one cares if the Fed has a bunch of non performing loans on its balance sheet. They can just stay there ad infinitum.

What happened during the Great Recession was that, thanks to financial instruments called derivatives, banks were liable for a lot more money than simple mortgages and other retail loans. They had committed to covering bets like interest rate swaps or collateralized debt obligations (CDOs) without understanding the liabilities they had agreed to. Derivatives represent gambles. A hedge fund will bet that an underlying security will go up or go down. When they win their bets, as they did in 2008, mainly due to foreclosures, it is similar to a run on the bank only a lot more money is at stake. Certain banks and financial institutions did not have the money to pay off the bet. So the Fed stepped in and paid off the bet for them. This was how the financial crisis was resolved. All the gamblers were made whole by the Federal Reserve. All the bets were paid off and very few financial institutions had to go out of business. Lehman Brothers was one institution that did go bankrupt and was liquidated.

The Fed can control how much money is sloshing around in the economy by raising or lowering the prime interest rate. That's the interest rate a bank pays to borrow money. The bank then charges the average Joe a lot higher interest rate, and they make money on the spread. Obviously, the Fed doesn't want the retail banks to make foolish loans that won't be paid back because then it will have to bail out the banks that made such loans. However, this is exactly what led to the 2008 financial crisis. The banks were making "liar loans" base on stated income. A waitress could go into the bank and just state her income was $125,000. a year. There was no checking. She was given a mortgage to buy a house. Then, when she couldn't make the payments on the house, the bank foreclosed. When the bank couldn't resell the house and get its money back, the bank's reserves were diminished and finally it couldn't meet its obligations. That's when the Fed stepped in with more liquidity. The Fed just created money out of thin air the same way the banks created money for loans, and flooded the banking system with it.

Average people lost their homes and their jobs, but investors and gamblers who had bet that the economy would collapse were paid off. This is the solution that Obama oversaw that was created by his protege Tim Geithner, Obama's Secretary of the Treasury. Now the question might be asked why the gamblers who had bet that the economy would fail were paid in full because the Federal Reserve created the money out of thin air to pay them while there was no money created to bail out the American people who had lost their homes and their jobs. Why was their no money created to alleviate the suffering? That's because that's not the Fed's job. The Fed's job is to bail out the banks. Hedge fund manager John Paulson made an estimated $2.5 billion during the crisis by betting against the housing market.

It doesn't take a genius to see that the US might have better spent its money by more widely distributing the trillions that the Fed created rather than paying off a hedge fund manager to the tune of a couple billion dollars, but again that's not the Fed's job. It should have been Obama's job to step in and demand that investor/gamblers not be paid, and that the Fed's trillions of dollars that it created go to the average John and Jayne that lost everything. But that's not how things work in the US capitalist economy. The Fed is not beholden to the American people. It's only beholden to the banks, and even there, it can decide which ones it wants to fail (Lehman Bros.) and which ones it wants to bail out (every other bank).

The trillions of dollars created by the Federal Reserve in its Quantitative Easing (QE) program go directly into the hands of investors meaning rich people. This does not "trickle down" to the American public. So it's no mystery why economic inequality is increasing, why the rich are getting richer and the poor are getting poorer. Much is made about how the Federal Reserve is "independent" from the Federal government. That's because it is a privately owned, wholly owned subsidiary of the big banks. It is literally owned by Wall Street and it's only beholden to Wall Street. It only serves the American public in the sense that it keeps the financial system operating smoothly supposedly.

Consider the alternative. A public bank, one beholden to the American people or its representatives, would have been able to direct the money flow at least partially to the direct alleviation of suffering of the American people during a recession or a depression. The Reconstruction Finance Corporation served the role during the Great Depression of getting money directly to state and local governments and to the American people. It supported banks as well, but the monies also flowed directly into the economy without having to take the form of loans created by the Wall Street banks. It was more hands on in bailing out certain industries.

A public bank, such as exists in North Dakota, can make loans directly to people and small businesses. It doesn't deal in fancy derivatives and is accountable not to the banking system but to the people in general. In North Dakota's case it's accountable to the people of North Dakota to whom it returns its profits. The Central Bank of the United States could be a public bank on the national level which would replace the Federal Reserve with the mandate of supporting the American people directly as well as the banking structure. It would not deal in derivatives which only benefit hedge funds and drive inequality.

The coronavirus could induce another Great Depression depending on how long it lasts. However, don't expect the Federal Reserve to protect the American people although it will protect Wall Street. No investor/gambler need fear losing their money. In fact the John Paulsons of the world, who have probably already taken out fantastic bets that the economy will go down, stand to make billions supplied of course by the Federal Reserve which will create the money out of thin air. This sloshing around of money will be scooped up by the billionaire class. Then the Federal government will come through on the fiscal side to supply aid of some sort to the American people while adding all this money to the national debt.

March 17, 2020

The Fed announced recently that it would cut interest rates to zero. It has also promised to insert $1.5 trillion of "liquidity" into the markets. It's clear that the US is a society that runs on debt, and the biggest non profit producing industry that has gorged itself on humungus amounts of debt is fracking. But investors are getting weary. S&P Global Ratings this month cut credit ratings of six shale gas producers citing the outlook for natural gas prices. "We are particularly concerned about some of the issuers' ability to access the capital markets given investor aversion to the space," S&P said. But no worries. A Fed bailout is on the way. Zero percent interest. Free money. Whoopee. Frack away.

Just a few days ago, CNBC host Jim Cramer exclaimed, "I'm done with fossil fuel," after disappointing earnings reports from Dow Jones energy giants Chevron and Exxon Mobil. "We're in the death knell phase," he warned. The fracking industry is deathly afraid that, if Bernie Sanders is elected, the gravy train will be over. Fracking has provided a lot of jobs for a lot of people, but it is not profitable if the world oil price is less than $40 a barrel. Right now, thanks to Russia and Saudi Arabia, the price of oil is $30 a barrel. A Green New Deal would have to provide jobs for all those workers in the fracking industry who have been making pretty good money even though the industry as a whole is unprofitable.

The Fed is doing its job to create another tower of debt in the US. Alexandria Ocasio-Cortez has pointed out that the $1.5 trillion the Fed has injected into the system for "liquidity" could wipe out all the student loan debt in the US which now stands at $1.5 trillion. But the Fed insists that any stimulus to the economy which would actually help working people as opposed to investors has to come from the fiscal side meaning that Congress would have to appropriate the money. The Fed's job is to make sure that no major business player in the US economy goes bankrupt including the US government itself which is wallowing in debt to the tune of $1 trillion a year thanks to Trump's tax cuts for the rich similar to Ronald Reagan's tax cuts for the rich which quintupled the national debt. It took a Democrat, poor old Clinton, to reduce the deficit to zero.

The question naturally arises of why can't the Fed bail out American workers to the tune of $1000 a month as Andrew Yang has suggested especially now that the coronavirus has put a huge damper on consumption which is 70% of the economy. The Fed says, "Not my job. That's Congress' job." The Fed as it turns out is a wholly owned subsidiary of Wall Street. It is not a publicly owned entity. Congress will do nothing to bail out the American people because of the Republican controlled Senate led by Mitch McConnell. Even if Democrats were to attain a majority in the Senate, the filibuster would prevent them from doing anything. So Joe Biden, even if elected, will get nothing substantial done including building on Obamacare. The only reason Obamacare was even passed in the first place was that Democrats had a majority in both Houses and a filibusterproof majority in the Senate (60 votes) for a very short period of time (4 months) during which Obamacare was passed. Good luck Joe.

If the Fed, instead of being privately controlled by Wall Street, were to become a truly public institution controlled by Congress, then maybe it could bail out the general American public instead of failing businesses. According to the rules of capitalism, failing businesses at some point should go bankrupt. The Fed is essentially preventing that from happening thus fueling the stock market. However, the stock market senses that at this point the Fed has used up all its tools and can do nothing further. There is probably too much liquidity in the markets already. Providing more wouldn't do any good. Interest rates are already at zero. The Fed could go to negative interest rates, but that would screw the economy up even more. Perhaps we'll all have to settle for a good old recession after all. But one thing is for certain. About six months from now, Trump will pull out all the stops to get the economy moving again just before the election since he is basing his reelection on a robust economy. However, it all depends on whether or not the coronavirus is under control at that point. If it is, Trump will take credit.

March 13, 2020

The Federal Reserve just announced that it would give $1.5 trillion to the rich, and lower interest rates to zero. That means more money available for gambling in the Wall Street Casino. According to the Federal Reserve Act, "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." So the Fed traditionally raised interest rates when the economy was expanding too rapidly leading to too much inflation and reduced them when the economy was contracting and there was too much unemployment. However, what it is doing now and has been doing since 2008 is pouring money into the coffers of the big Wall Street banks with a spigot that is hardly ever turned off.

Most of the money coming from the Fed's spigot #1 never goes to the average Joe or Jane and #2 goes directly into gambling by Wall Street in an attempt to keep financial instruments such as the stock and bond markets from collapsing. There is so much money sloshing around in the coffers of rich people that it has no impact on the real economy. There is full employment and no inflation so the Fed shouldn't have to do anything because those are the twin goals it was set up to achieve. It wasn't set up to make sure the stock market never sold off. Yet this is what it is now all about. The economy has become so financialized that limiting inflation and controlling interest rates is some archaic thing that the Fed is hardly concerned with any more.

The unscheduled move - the latest in a series of actions aimed at providing liquidity and reassurance as the outbreak grows and brings areas of the country to a veritable halt - came as U.S. stocks plunged nearly 10% in their biggest one-day losses since the 1987 market crash. The outbreak, which originally was thought to pose a limited threat to the U.S. economy, is now increasingly seen as the event that could bring a record-long economic expansion to an end, but with little clarity yet as to how severe the downturn might be.The economy is already being hit with waves of event and travel cancellations. Broadway and Disneyland are going dark and the professional sports industry is for now on hold. ...

"The Fed is likely to do more soon, including cutting rates to likely zero," Ebrahim Rahbari, chief currency strategist for Citi, said in a note to clients Thursday.

That would represent a dramatic turn of events for the Fed, reversing in a matter of months a decade's worth of effort to move interest rates back towards something like a normal level - only to see the twin shocks of a global trade war and now a global health emergency push them back down.

Interest rates at zero means pouring even more free money into the economy. That's the Fed's response to every situation now: free money for rich people. Nothing for the average Joe or Jane because if the average Joe or Jane had more consuming power, that would lead to higher prices, and, therefore, price inflation, another headache for the Fed.

Ronald Reagan did more to break the inflation of the 70s and 80s by breaking the unions. Once the country was deunionized there was no more wage inflation because workers were no longer in a position to demand higher wages. Their work was off shored to China where workers worked for pitiful wages so that American consumers could buy products at low prices. So there was no price inflation. So the Fed turned its mission instead into pouring money into the economy in the hopes that this would keep everybody working. But there is so much of this money sloshing around among rich people that they are not investing in new enterprises which is what is needed to keep the economy humming. So they are gambling with it instead and these gambles also add to GDP when they win.

Much of the American economy has to do with professional sports and entertainment. So when you have professional sports and Disneyland shut down due to the coronavirus, this naturally leads to a recession. People aren't traveling or going on cruises. This leads to a recession. Since the US GDP is 70% consumption, you can't have entertainment being shut down without diminishing consumption by a great amount. Entertainment and professional sports is a goodly percentage of consumption. Because of the coronavirus most nonessential consumption is being shut down. The bar and restaurant business is being shut down. The only businesses who are doing good are the toilet paper and bottled water industries.

So what the Fed is doing by adding $1.5 trillion to the economy at this time has nothing to do with getting people to go to events or eat out more often. It is just to satisfy the whims of rich stock and bond market investors who must be appeased at all costs.

When the World Health Organization announced on Feb. 24 that it was time to prepare for a global pandemic, the stock market plummeted. Over the following week, the Dow Jones Industrial Average dropped by more than 3,500 points, or 10%. In an attempt to contain the damage, the Federal Reserve on March 3 slashed the fed funds rate from 1.5% to 1.0%, in its first emergency rate move and biggest one-time cut since the 2008 financial crisis. But rather than reassuring investors, the move fueled another panic sell-off.

Exasperated commentators on CNBC wondered what the Fed was thinking. They said a half-point rate cut would not stop the spread of the coronavirus or fix the broken Chinese supply chains that are driving U.S. companies to the brink. A new report by corporate data analytics firm Dun & Bradstreet calculates that some 51,000 companies around the world have one or more direct suppliers in Wuhan, the epicenter of the virus. At least 5 million companies globally have one or more tier-two suppliers in the region, meaning that their suppliers get their supplies there; and 938 of the Fortune 1,000 companies have tier-one or tier-two suppliers there. Moreover, fully 80% of U.S. pharmaceuticals are made in China. A break in the supply chain can grind businesses to a halt.

So what was the Fed’s reasoning for lowering the fed funds rate? According to some financial analysts, the fire it was trying to put out was actually in the repo market, where the Fed has lost control despite its emergency measures of the last six months. Repo market transactions come to $1 trillion to $2.2 trillion per day and keep our modern-day financial system afloat. But to follow the developments there, we first need a recap of the repo action since 2008.

Repos and the Fed

Before the 2008 banking crisis, banks in need of liquidity borrowed excess reserves from each other in the fed funds market. But after 2008, banks were reluctant to lend in that unsecured market, because they did not trust their counterparts to have the money to pay up. Banks desperate for funds could borrow at the Fed’s discount window, but it carried a stigma. It signaled that the bank must be in distress, since other banks were not willing to lend to it at a reasonable rate. So banks turned instead to the private repo market, which is anonymous and is secured with collateral (Treasuries and other acceptable securities). Repo trades, although technically “sales and repurchases” of collateral, are in effect secured short-term loans, usually repayable the next day or in two weeks.

The risky element of these apparently secure trades is that the collateral itself may not be reliable, because it may be subject to more than one claim. For example, it may have been acquired in a swap with another party for securitized auto loans or other shaky assets — a swap that will have to be reversed at maturity. As I explained in an earlier article, the private repo market has been invaded by hedge funds, which are highly leveraged and risky; so risk-averse money market funds and other institutional lenders have been withdrawing from that market. When the normally low repo interest rate shot up to 10% in September, the Fed therefore felt compelled to step in. The action it took was to restart its former practice of injecting money short-term through its own repo agreements with its primary dealers, which then lent to banks and other players. On March 3, however, even that central bank facility was oversubscribed, with far more demand for loans than the subscription limit.

The Fed’s emergency rate cut was in response to that crisis. Lowering the fed funds rate by half a percentage point was supposed to relieve the pressure on the central bank’s repo facility by encouraging banks to lend to each other. But the rate cut had virtually no effect, and the central bank’s repo facility continued to be oversubscribed the next day and the following. As observed by Zero Hedge:

"This continuing liquidity crunch is bizarre, as it means that not only did the rate cut not unlockadditional funding, it actually made the problem worse, and now banks and dealers are telegraphing that they need not only more repo buffer but likely an expansion of QE [quantitative easing].

The Collateral Problem

As financial analyst George Gammon explains, however, the crunch in the private repo market is not actually due to a shortage of liquidity. Banks still have $1.5 trillion in excess reserves in their accounts with the Fed, stockpiled after multiple rounds of quantitative easing. The problem is in the collateral, which lenders no longer trust. Lowering the fed funds rate did not relieve the pressure on the Fed’s repo facility for obvious reasons: Banks that are not willing to take the risk of lending to each other unsecured at 1.5% in the fed funds market are going to be even less willing to lend at 1%. They can earn that much just by leaving their excess reserves at the safe, secure Fed, drawing on the Interest on Excess Reserves it has been doling out ever since the 2008 crisis.

But surely the Fed knew that. So why lower the fed funds rate? Perhaps because it had to do something to maintain the façade of being in control, and lowering the interest rate was the most acceptable tool it had. The alternative would be another round of quantitative easing, but the Fed has so far denied entertaining that controversial alternative. Those protests aside, QE is probably next after the Fed’s orthodox tools fail, as the Zero Hedge author notes.

The central bank has become the only game in town, and its hammer keeps missing the nail. A recession caused by a massive disruption in supply chains cannot be fixed through central-bank monetary easing alone. Monetary policy is a tool designed to deal with demand — the amount of money competing for goods and services, driving prices up. To fix a supply-side problem, monetary policy needs to be combined with fiscal policy, which means Congress and the Fed need to work together. There are successful contemporary models for this, and the best are in China and Japan.

The Chinese Stock Market Has Held Its Ground

While U.S. markets were crashing, the Chinese stock market actually went up by 10% in February. How could that be? China is the country hardest hit by the disruptive COVID-19 virus, yet investors are evidently confident that it will prevail against the virus and market threats.

In 2008, China beat the global financial crisis by pouring massive amounts of money into infrastructure, and that is apparently the policy it is pursuing now. Five hundred billion dollars in infrastructure projects have already been proposed for 2020 — nearly as much as was invested in the country’s huge stimulus program after 2008. The newly injected money will go into the pockets of laborers and suppliers, who will spend it on consumer goods, prompting producers to produce more goods and services, increasing productivity and jobs.

How will all this stimulus be funded? In the past, China has simply borrowed from its own state-owned banks, which can create money as deposits on their books, as all depository banks do today (see here and here). Most of the loans will be repaid with the profits from the infrastructure they create, and those that are not can be written off or carried on the books or moved off the balance sheet. The Chinese government is the regulator of its banks, and rather than putting its insolvent banks and businesses into bankruptcy, its usual practice is to let nonperforming loans just pile up on bank balance sheets. The newly created money that was not repaid adds to the money supply, but no harm is done to the consumer economy, which actually needs regular injections of new money to fill the gap between debt and the money available to repay it. In all systems in which banks create the principal but not the interest due on loans, this gap continually widens, requiring continual infusions of new money to fill the breach (see my earlier article here). In the last 20 years, China’s money supply has increased by 2,000% without driving up the consumer price index, which has averaged around 2% during those two decades. Supply has gone up with demand, keeping prices stable.

The Japanese Model

China’s experiences are instructive, but borrowing from the government’s own banks cannot be done in the U.S., because our banks have not been nationalized and our central bank is considered to be independent of government control. The Fed cannot pour money directly into infrastructure but is limited to buying bonds from its primary dealers on the open market.

At least, that is the Fed’s argument, but the Federal Reserve Act allows it to make three-month infrastructure loans to states, and these could be rolled over for extended periods thereafter. The repo market itself consists of short-term loans continually rolled over. If hedge funds can borrow at 1.5% in the private repo market, which is now backstopped by the Fed, states should get those low rates as well.

Alternatively, Congress could amend the Federal Reserve Act to allow it to work with the central bank in funding infrastructure and other national projects, following the path successfully blazed by Japan. Under Japanese banking law, the central bank must cooperate closely with the Ministry of Finance in setting policy. Unlike in the U.S., Japan’s prime minister can negotiate with the head of its central bank to buy the government’s bonds, ensuring that the bonds will be turned into new money that will stimulate domestic economic growth; and if the bonds are continually rolled over, this debt need never be repaid.

The Bank of Japan has already “monetized” nearly 50% of the government’s debt in this way, and it has pulled off this feat without driving up consumer prices. In fact, Japan’s inflation rate remains stubbornly below the BOJ’s 2% target. Deflation continues to be a greater concern than inflation in Japan, despite unprecedented debt monetization by its central bank.

The Independent Federal Reserve Is Obsolete

In the face of a recession caused by massive supply-chain disruption, the U.S. central bank has shown itself to be impotent. Congress needs to take a lesson from Japan and modify U.S. banking law to allow it to work with the central bank in getting the wheels of production turning again. The next time the country’s largest banks become insolvent, rather than bailing banks out, Congress should nationalize them. The banks could then be used to fund infrastructure and other government projects to stimulate the economy, following China’s model.

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of thirteen books including her latest, "Banking on the People: Democratizing Money in the Digital Age."

During WW II, Cars and Gas Were Rationed. Would the American People Accept Such Sacrifices in the War on Global Warming?

by John Lawrence, March 10, 2020

Evidently not. Despite warnings that we have less than 10 years to do something before there is runaway global warming, nothing much has been done. Yet the coronavirus has set the world's consciousness on fire in just a few short weeks. Why hasn't global warming gotten the world so up in arms? During WW II everybody had a job; everybody worked, yet there were government mandated limits on consumption. All kinds of things were rationed especially cars and gas. Yet economic activity expanded due to ramping up the war effort. Today the economy is going into a tailspin because large crowds have been proscribed. All the money that has been added to GDP by music events and professional athletics has gone bye-bye. This is not necessarily a bad thing because people might be better off staying home and reading a good book rather than being out at a sporting event. I know. I know this is a very unpopular opinion.

The point is that, during WW II people had the basic necessities, and everyone was employed. They just couldn't have the icing on the cake until after the war when rationing was lifted. Then the economy boomed. Perhaps there is a lesson here for how to mobilize a society to get a handle on global warming. In the few short weeks that government spokesmen have decried cruise ship and airplane travel, green house gas emissions (GHGs) have actually decreased. If the government proscribed these and other activities such as automobile travel (think gas rationing), GHGs would decrease even more rapidly. Then, if the government went on an investment spree in terms of renewable energy the way it did on planes and battleships during WWII, there would be full employment. People would just be limited temporarily until this war is won in how they could actually spend their money just like in WWII.

Then after a totally green economy is achieved fueled by green renewable energy, the barriers on spending money would be lifted. Could this even work? Some authors don't think so. William Greider writes in "Secrets of the Temple":

World War II was a model of the possible. In theory, if a national consensus of purpose developed, if people would accept temporary limits on their economic choices as well as regulatory controls on wages and prices, the nation could literally rebuild itself, almost overnight. With the right choices, America could practically double the productive capacity of its economy and advance innovation and dramatically multiply new wealth and incomes. These economic choices, however, were really political questions: who would take the sacrifices and who would take the rewards? Whose consumption would be restrained and whose production would be encouraged. All this consigned extraordinary powers to government, perhaps tolerable only in war. No one, including the most ardent Keynesian planners, has ever figured out how to recreate a comparable combination of creative sacrifices in peacetime or how to sell it to a free society.

And that, dear reader is the crux of the matter. How do you sell the necessary war time effort to combat global warming to a free society? Sure the coronavirus has had the salutary effect of decreasing cruise ship and airplane travel with the concomitant decrease in GHG emissions. At the same time the stock market has gone into a tailspin. If the same kind of effort were made in behalf of global warming, we could expect the stock market to go into the mother of all tailspins. Is it worth it or should we consign future generations to the fate of runaway global warming and an uninhabitable planet?

Abraham Maslow wrote a book, "Towards a Psychology of Being" in which he identified a pyramid of needs starting with D-needs. D-needs are the basic needs of food, air, water, housing and clothing. You might throw in medical care.Then, as you ascend the pyramid, higher order needs are revealed once the lower order needs are met. At the top he identified B-needs or self-actualization which might mean developing all your latent higher order capacities such as becoming a great musician. What seems to me to have happened though is that society has intervened in this process to impose superfluous needs on people. Let's call them S-needs. These needs have to do with all the materialistic consumption that a commercial society imposes or tries to impose on people through advertising so that Maslow's higher order needs are really short-circuited. That's why I say that staying home and reading a good book might be more beneficial in and of itself than attending a professional sporting event in addition to protecting one from the coronavirus.

What an enlightened society would do to combat global warming is exactly what America did during WW II. D-needs were well satisfied due to a full employment society in which certain kinds of consumption were discouraged while making sure that everyone was fed, clothed, housed and had adequate medical treatment. Could in Greider's words a " national consensus of purpose develop" in which people felt it was more important to delay certain kinds of consumption in order to develop the green infrastructure needed to get global warming under control? The world needs America's leadership on this because America is largely responsible for the GHGs already in the atmosphere, and, if America will not have a sense of urgency, why should any other nation which is just starting to develop a consumer culture?

Traders work the floor of the New York Stock Exchange (NYSE) on March 5, 2020 in New York City. (Photo: David Dee Delgado/Getty Images)

Fears of a financial meltdown at least on the scale of the 2008 crisis intensified Monday as global markets were gripped by panic resulting from the spread of the coronavirus across the globe and the ensuing oil price war launched by Saudi Arabia over the weekend.

"The fear today is about a global recession," said Thomas Hayes, chairman of management firm Great Hill Capital, as markets headed for their worst day since the 2008 crash.

"Trump won't let people infected off of a cruise ship and into quarantine because he likes 'the numbers being where they are.' He'd rather keep the numbers down than help these folks. This is literally the worst person to be in charge in this moment." —Jamil Smith, Rolling Stone

As the Washington Postreported Monday morning: "U.S. futures pointed to heavy losses on Wall Street on Monday. Overseas, London's FTSE 100 fell more than 8 percent to its lowest in three years; Japan’s Nikkei index slumped more than 5 percent and Australia's benchmark shed more than 7 percent. Oil prices suffered the sharpest plunge since the 1991 Gulf War, while 10-year U.S. bond yields dropped to a record low as investors sought safety."

While some urged caution in interpreting the meaning of daily market fluctuations, analysts said there is reason to fear that destructive economic crisis is on the horizon. Chris Weston, head of research at the Melbourne-based web trading platform Pepperstone, toldThe Guardian that "there is genuine panic" in the market, noting that he hasn't "seen anything like this for years."

Escalating market turbulence and warnings of a worldwide economic fallout came as the human toll of the coronavirus, officially known as COVID-19, continued to grow. In the United States, the number of recorded cases surpassed 500 across 34 states and deaths rose to 22 as the Trump administration's lack of preparedness was on full display Sunday morning.

Asked about the White House's plan for the 3,500 passengers and crew members aboard the Grand Princess cruise ship—which is set to dock Monday at the Port of Oakland after 21 people on the vessel tested positive for COVID-19—U.S. Housing and Urban Development Secretary Ben Carson insisted that "the plan will be in place."

U.S. President Donald Trump, for his part, told reporters Friday that he would prefer that the passengers remain aboard the Grand Princess because he doesn't want "to have the numbers double because of one ship," referring to the number of known coronaviruses cases in the United States.

"This is 25th Amendment stuff," tweeted Jamil Smith, senior writer for Rolling Stone. "Trump won't let people infected off of a cruise ship and into quarantine because he likes 'the numbers being where they are.' He'd rather keep the numbers down than help these folks. This is literally the worst person to be in charge in this moment."

Trump's remarks came just hours after the president falsely claimed that his administration "stopped" the spread of coronavirus in the U.S.

"The [coronavirus] tests are all perfect. Like the letter was perfect. The transcription was perfect. This was not a perfect as that, but pretty good." -- is Trump referring to the transcript of his phone call with the Ukrainian president here? pic.twitter.com/FU5XxPTu7Z

Meanwhile, Italy on Sunday ordered what the New York Timesdescribed as "an unprecedented peacetime lockdown of its wealthiest region," restricting movement for as much as a quarter of the country's population as the country struggled to contain the coronavirus outbreak.

"The Italian outbreak—the worst outside Asia—has inflicted serious damage on one of Europe's most fragile economies and prompted the closing of Italy's schools," the Times reported. "The country's cases nearly tripled from about 2,500 infections on Wednesday to more than 7,375 on Sunday. Deaths rose to 366."

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March 03, 2020

It's Not About Radical VS Moderate. It's About Neoliberalism VS Social Democracy.

by John Lawrence

Joe Biden is not a moderate. He's about the continuation of neoliberal policies that got us to where we are today: the biggest economic inequality of all time. Neoliberalism is laissez-faire capitalism. The wealthiest 3 American families now own as much wealth as the bottom 50% of all Americans. Bernie Sanders is right about that. Social democracy is about evening out the distribution of wealth in this country. Joe Biden will continue the same policies that we have now: unending wars, nibbling around the edges of the income and wealth distribution, acceding to Mitch McConnell who will say "no" to every progressive policy. Going along with tax breaks for the rich and letting corporate lobbyists determine US environmental policies.

Since the 1980s the US has charged ahead with neoliberal policies which give tax breaks to the rich and subsidize profitable corporations because their lobbyists demand it. With Biden as President students will still be smothered with student loan debt. In 2005 Republicans led the way to taking away bankruptcy protection from student loan debtors. 18 Democratic senators broke ranks and cast their votes in favor of the bill. Of those 18, one politician stood out as an especially enthusiastic champion of the credit companies who, as it happens, had given him hundreds of thousands of dollars in campaign contributions – Joe Biden.

Joe Biden never met a credit card company he didn't like. He was known as the Senator from MBNA. All the credit card companies are headquartered in Delaware, Biden's home state. They will be enthusiastically cheering for him to win the Democratic nomination. In the 2003-2008 senatorial election cycle, Biden received more than $500,000 in help from credit card companies, financial services and banks. So this is the guy who is going to rein in Wall Street? Wall Street will get everything it wants under him including the continuation of student loan debtors without bankruptcy protection or relief.

It will be business as usual under a Joe Biden Presidency. Moderation means business as usual with neoliberal self serving policies enthusiastically supported. People that want radical change in this country including a Green New Deal, Medicare for All, student loan debt forgiveness and free child care paid for by taxes on the wealthy should get behind Bernie Sanders and/or Elizabeth Warren. Warren said, “At a time when the biggest financial institutions in this country were trying to put the squeeze on millions of hard-working families, Joe Biden was on the side of the credit card companies.”

Social democracy does nothing to inhibit entrepreneurialism. The socially democratic Scandinavian countries have created their share of entrepreneurs and businesses. The Washington Post reported:

Finnish Prime Minister Sanna Marin is a big believer in the “American Dream,” and she thinks it’s a lot easier to achieve now in her country than in the United States.

“I feel that the American Dream can be achieved best in the Nordic countries, where every child, no matter their background or the background of their families, can become anything,” Marin told The Washington Post in an interview on the sidelines of the World Economic Forum in Switzerland last month.

“We feel that the Nordic model is a success story,” said Marin, who became prime minister in December at age 34, making her briefly the youngest world leader (she lost that title in January when 33-year-old Sebastian Kurz returned to power as Austrian chancellor).

Bernie Sanders is a fan of the ‘Nordic model.’ Finland’s leader says it’s the American Dream.

Marin is hardly the first to claim that it’s easier to live the “American Dream” in Nordic countries. British politician and former Labour Party leader Edward Miliband said it in 2012. A New York Times opinion piece last year dubbed Finland a “capitalist paradise.” And presidential candidate Sen. Bernie Sanders (I-Vt.), a self-declared “democratic socialist,” has often said that the United States should be more like Scandinavia.

Not only are Scandinavian social democratic economic systems more conducive to business creation but also their political systems bear looking at. Proportional representation in a monocameral Parliament may be far more democratic than the dysfunctional US system where the Republican Senate routinely vetoes anything the Democratic House passes. The winner take all US system discourages third party representation and boils down to all out war between two bitterly divided rivals. Is this any way to run a country?

The single-member district voting system has been on the wane worldwide because it has a number of serious drawbacks. It routinely denies representation to large numbers of voters, produces legislatures that fail to accurately reflect the views of the public, discriminates against third parties, and discourages voter turnout. All of these problems can be traced to a fundamental flaw in our system: only those who vote for the winning candidate get any representation. Everyone else -- who may make up 49% of the electorate in a district -- gets no representation. This new reform is also beginning to get some attention: replacing our present single-member district, winner-take-all election system with proportional representation elections. Political commentators writing in The Washington Post, The New Republic, The New Yorker, The Christian Science Monitor and USA Today have endorsed it. Grassroots groups in several states are now organizing to bring proportional representation to local elections.

With the US Congress at loggerheads with itself, a new political system as well as economic reform needs to be undertaken. The Scandinavian social democrats may be way ahead of the US both in economic, political and certainly in social terms.

February 03, 2020

In order to save the planet from global warming, we may have to go back to how life was in preindustrial times circa 1860. Before the era of the automobile, the airplane, industrialized food and electricity. The first oil well was discovered in 1859. After that it's been downhill all the way insofar as planet earth is concerned. Smokestack industries have been spewing greenhouse gasses into the fragile atmosphere. Cars, airplanes, coal burning steam locomotives, coal fired electricity generating plants - all the appurtenances of modern life including labor saving appliances have been contributing to the destruction of earth's atmosphere with the consequence of global warming. Plastic produced from petrochemicals is polluting the ocean. Viewed form the perspective of the long term viability of earth as a place of habitability for human beings and other species, oil and coal have been more of a curse than a blessing. Modern life, industrialized life has been a tragedy for Mother Earth, and will have contributed to its destruction as a place for humans to live in less than 200 years from the discovery of oil unless drastic action is taken.

To the extent that renewable energy can be brought online, we may not have to give up all the appurtenances. However, most Americans will not voluntarily give up their way of life. It's ingrained in the American way that we should have more energy consuming goddies and gadgets than our parents had. That's the meaning of progress. We can't regress, can we? Besides, Americans are taught to maximize their own personal success, profit and benefit. For example, Wall Street is only interested in short term profits, not the long term livability of the human habitat we call earth. We have been ingrained that we should be free to pursue our own advantage. To think that now Americans will be asked to sacrifice to save the planet for future generations is almost unthinkable.

Instead of a future utopia on planet earth, the stage has been set for dystopia. Instead of saving the planet for all people and for future generations, the American playbook, unless there are drastic changes, will be to save the planet for rich Americans and to hell with the rest of the world. If people have to die, the US will see to it that rich Americans are safe, well fed and well protected from the ravages of climate change. People elsewhere on the planet will not be so protected or kept safe. In fact if history is any example, they will continue to be exploited for the benefit of rich Americans so that they can maintain the lifestyle they feel they are entitled to.

As sea levels rise, American corporations will just continue operation in the midwest, well away from the sea coasts. As New York City becomes a waterlogged ghost town, Wall Street will just relocate to Chicago or Des Moines, no problem. Headquarter locations are fungible. While the rest of the nation is fed industrialized food, the rich will eat organic food grown on small farms the way it was in the preindustrial age. As some vacation spots in the world become uninhabitable, others will open up perhaps farther north. Siberia may become the next playground for the rich. Desalination plants will provide pure water for a limited number of people as the rivers which have historically provided drinking water dry up for lack of snow pack or glaciers.

In short instead of the hardships being shared mutually among all people on the planet, they will be visited on the lower classes the way they have always been. The ruling powers, whether it be the American Empire or some other empire, will see to that. The ideals of freedom and liberty will be in name only and mainly exercised by the upper classes while the rest of the people will be propagandized to think that they are free. As the Romans pacified their population with bread and circuses, modern dystopian society will make poor people work overtime for bread while providing circuses galore by means of mass media. The salinity of drinking water in some parts of the world as well as the acidification of the ocean which killed all the crustaceans will be of no concern to rich Americans who will have their seafood tailor made for them on elaborate farms.

In short, if we continue on our present path, most Americans will value the continuation of their present lifestyles more than the habitability of the planet for future generations. Not maximizing current levels of consumption will be seen as socialistic. Capitalism demands that the emphasis be on short term profits for ourselves not long term viability of the planet for others. If necessary, war can guarantee that only the strongest in military terms will survive.

January 20, 2020

What's not to like about the economy? Lowest unemployment in 19 years. The stock market is through the roof. Low income workers have made the biggest gains in wages. According to the Wall Street Journal: "The lowest-paid Americans saw weekly earnings grow more than 5% in the second quarter from a year earlier, more than the national median gain of 1.7% for all workers, according to a quarterly survey of households produced by the Labor Department. Workers with less than a high-school diploma saw their wages grow almost 6%, and younger workers’ pay grew almost 3%." So is trickle down really working?

The Fed stands by to give more money to the rich if the economy shows a sign of faltering. The Big Banks are too big to fail. Unlimited prosperity, right? Except all this economic growth is adding to rather than subtracting from global warming. More people are traveling while jets are spewing more jet fuel effluent into the atmosphere. The automobile industry has a huge investment in fossil fuel cars. Every year more carbon dioxide goes into the atmosphere as oil still predominates in world markets. The American as well as the Chinese consumer economy is providing more middle class goodies each year which are tossed away creating more and more waste. Plastics are piling up in the oceans. More and more weedkillers are used to grow crops whose residues end up in human blood streams. Feed lot animals are fed a diet of antibiotics to make them grow quicker so they can be slaughtered sooner. This creates the situation in which they are not really useful for overcoming human diseases any more. The American way of life, which the whole world aspires to, is polluting the planet and despoiling the atmosphere, but it keeps the economy churning. Entrepreneurs are thinking up even more ways to sell us useless products and vapid entertainment.

The economy is predicated on waste, inefficiency and destructive weapons production including nuclear weapons. More and more money goes into the military-industrial complex to develop more and more expensive planes and battleships which are so complex they don't work half the time. But we are promised a computer fix after they alter a few lines of code. And all those people making a living off the military-industrial complex waste would be out of a job if peace broke out. All those people involved in the labyrinthine insurance industry would be out of a job if Bernie's Medicare for All came to fruition. The economy thrives on inefficiency and waste. If things were done rationally, so many people would be out of a job that the economy would grind to a halt.

Wall Street is not about to change its policy of promoting companies which seek maximum short term profits instead of sustainable growth that benefits all stakeholders including Mother Earth who in the final analysis is the most consequential stakeholder. But Americans and humans in general don't want to tighten their belts in order to save the planet. They would rather have short term profits and growth particularly if it can be tailored to fit into their lifespans. After their death all hell can break loose, but they won't be here to experience it. They had a good life at the expense of future generations. Ta ta, future babies. Trump will win because people care more about their present life than they do about the future generations of life on earth. Besides all those people in the military-industrial complex, which in the larger sense includes anyone who has ever been in the military, will vote for Trump because association with the military, whether pecuniary or not, represents masculine pride, virility and vanity. Ayn Rand would approve.

December 15, 2019

The US is getting prolific in its use of sanctions. It is now targeting a Russian pipeline, the Nord Stream 2, which is set to deliver natural gas to Germany. This is irritating the hell out of German Foreign Minister Heiko Maas who tweeted, “the European energy policy will be decided in Europe, not in the U.S. We fully reject external interference and extraterritorial sanctions.” So the US is pissing off not only its supposed enemies but also its friends and allies all over the world by its use of sanctions, which sanctions in Russia's and Germany's case will not do much to stop the almost completed pipeline. The sanctions — crafted by Senators Ted Cruz, Republican of Texas, and Jeanne Shaheen, a New Hampshire Democrat — have been attached to the 2020 National Defense Appropriations Act, which already has been approved by Congress.

The sanctions will also apply to to the TurkStream pipeline from Russia to Turkey which runs under the Black Sea. It seems everyone wants to get their natural gas from Russia and the US is doing a last ditch effort to slow down that progress although the effort will be futile in the long run and the only legacy will be that the US has pissed off its allies. The Nord Stream 2 runs under the Baltic Sea and allows Russia to by pass Ukraine which has become a sore spot for everyone concerned there. According to Bloomberg:

Congress could have been much harsher with its sanctions, though. It could have hit Nord Stream 2’s financial investors, all major European energy companies: Engie SA, Uniper SE, OMV AG, Wintershall Dea GmbH and Royal Dutch Shell Plc. It could have sanctioned Russian debt. It could have made it impossible to import equipment for the construction of Russian pipelines and do repairs and maintenance on them. All of these measures have been considered at various times, but struck down in order to avoid a major confrontation with the European Union and an upheaval in financial markets.

The US is rapidly isolating itself from the rest of the world by its use of sanctions and by Trump's stated goal of America First which amounts to the same thing. America is losing friends and losing its influence as a world leader something that it had taken for granted in the past. The US' use of sanctions has forced the rest of the world, allies and enemies alike, to come up with an alternative means of doing business without the use of the US dollar. This doesn't bode well for the US dollar which up to now has held sway as the world's reserve currency. Trump has set about destroying all those relationships which gave the dollar a privileged position among the world's currencies.

The US is already borrowing about $100 billion a month to fund its budget deficit. It relies on other countries to soak up most if not all of this debt, but other countries are buying less US debt each month especially in light of how the US has weaponized the US dollar by the use of sanctions. Barron's reported in May 2019:

Last week’s sale of 10-year Treasury notes was met with lackluster demand. Investors entered just $2.17 of bids for every $1 of notes sold, the lowest for any 10-year auction since 2009. Some analysts guessed that foreign buyers were retreating in the face of an escalating trade war with China, the largest single holder of Treasuries other than the Federal Reserve. The fear is that China will start dumping its holdings, driving the price of Treasuries down.

In the first four months 2019, foreigners bought 12% of the Treasuries auctioned, down from 2011’s average of 22%. Wall Street banks and hedge funds have had to step in to soak up the Treasuries that foreign governments are increasingly unwilling to buy. What happens then is that the Federal Reserve takes these Treasuries off Wall Street's hands and buries them on its balance sheet. The Fed announced in October 2019 that it would buy $60 billion worth of Treasuries a month, which amounts to Quantitative Easing (QE) although they're not calling it that. Basically, the Fed is eating $60 billion of US debt per month after Wall Street regurgitates it since it can't by law buy Treasuries directly. Wall Street is just the middle man. This, of course, is enriching Wall Street banks, but not the people of the US who would prefer QE for the people. The other angle is that the US needs to keep interest rates low because it has $23 trillion in national debt on which it has to pay interest. If interest rates rise, that means that the US will be going into debt at an increasing rate just to pay interest on its debt.

As Treasuries decline in value, US foreign creditors may not only buy less US debt, but they may also dump the US debt they now own on the market. This would lead to the fact that holding US Treasury debt may become less desirable as that debt becomes worthless, and as other currencies step up to replace the US dollar - at least in part - as the world's reserve currency. That may happen also as the US minimizes its relationship with Saudi Arabia which had agreed to price its oil only in terms of dollars in return for military support. With global warming upon us, the use of oil needs to decrease as fossil fuels in and of themselves become less desirable while other alternatives such as natural gas become preferable in terms of greenhouse gas emissions. All this presages a Federal Reserve that must step in to eat and bury more and more US debt tending to make the dollar less worthy and less effective as the world's reserve currency.

November 18, 2019

Republicans used to stand for fiscal conservatism. But they're only fiscally conservative when Democrats are in power. When they control the purse strings, they spend like drunken sailors with the result that the national debt is now $23 trillion. During FY2019, the federal government spent $4.45 trillion and collected approximately $3.46 trillion in tax revenue. A little simple arithmetic shows that the US Federal government has to borrow almost a trillion dollars a year in order to make ends meet or 82.5 billion dollars a month. And this will go on and only likely increase ad infinitum.

"The belief in Washington and on Wall Street has long been that the U.S. government could just keep issuing debt because people around the world are eager to buy up this safe-haven asset. But there may be a limit to how much the market wants, especially if inflation starts rising and investors prefer to ditch bonds for higher-returning stocks."

However, there is another scenario. The Federal Reserve could just keep eating the debt much as it did during the various stages of quantitative easing (QE). The Fed paid the Wall Street banks in cash for the Treasury bonds it took on its balance sheet. This cash provided the liquidity which allowed the banks to keep functioning after the Great Recession of 2008. However, the Fed promised to start selling those Treasury bonds back into the market thus unwinding its balance sheet, what you might call a quantitative tightening. But the Fed didn't get very far with that until the liquidity of the big banks started to be a problem again. So the Fed is back to QE again although now it's not calling it that. However, it is infusing $60 billion a month into the repo market, and taking that much in Treasury bonds off the Wall Street banks' books.

Wall Street banks are required to buy US Treasury bonds thus soaking up US government debt, that is if no other country or individual or other entity wants to buy it. Increasingly, it's getting difficult for the Treasury to sell its debt as other countries like China, which holds the largest amount of US debt, are cutting back on their purchases especially in light of Trump's use of the US dollar in trade wars and sanctions. US debt is not seen as the gold standard that it used to be. Therefore, the debt piles up on the balance sheets of Wall Street banks, and there is the threat of another liquidity crisis as there was in 2008. That's why the Fed is stepping in to buy up US Treasury debt and disappear it on its balance sheet thus providing liquidity to the Big Banks.

Primary dealers are banks and other financial institutions approved to trade with the Federal Reserve. In return for that privilege, they are obligated to place bids at the U.S. Treasury Department’s debt auctions.

With the federal fiscal deficit widening, dealers have bought up an increasing amount of government debt, constraining their ability to provide liquidity to funding markets when needed, but only a small proportion of those holdings are in shorter-term Treasury bills.

U.S. Treasurys held by primary dealers stood at $206 billion in the week ending Sept. 25. This compared with their holdings of Treasury bills which averaged $22.9 billion over the last six months, according to Fed data.

So US Treasurys, largely as the result of Trump's tax cuts for the wealthy, are clogging up the system, and the Fed must step in again after it had promised to unwind its balance sheet comprising trillions of US government debt when economic times returned to normal. But what is normal these days? A lot of pundits think there will be QE, like strawberry fields, forever. That would be the new normal. But wait until there's a Democratic President, and Republicans will start screaming bloody murder again about the national debt.

Unfortunately, all over the country, private equity and hedge funds have been scooping up these cash-strapped papers—and looting them into irrelevance or bankruptcy. (Photo: Shutterstock)

Though lacking the size and prestige of The New York Times or The Washington Post, The Storm Lake Times is arguably just as important.

Two years ago, the small, bi-weekly Iowa paper (circulation: 3,000) won the coveted Pulitzer Prize for taking onagricultural water pollution in the state. If it weren’t for vibrant local papers, stories like these might never come to light.

Unfortunately, all over the country, private equity and hedge funds have been scooping up these cash-strapped papers—and looting them into irrelevance or bankruptcy.

Here’s how it works.

Investors put down a fraction of the purchase price and borrow the rest—and then saddle the company with that debt. Layoffs and cutbacks follow, which leads to a shabbier product. Circulation and revenue decline, then more cuts, and the cycle accelerates.

Perhaps the most infamous recent example was the breakdown of the 127-year-old Denver Post. Since private equity firm Alden Global acquired the paper, it has cuttwo out of every three staff positions — twice the industry rate for downsizing.

To add insult to injury, the firm has been using staffpension funds as its own personal piggy bank. In total, they’ve moved nearly $250 million into investment accounts in the Cayman Islands.

Alden’s Digital First Media runs many other big papers, putting hundreds of newsroom staff at risk of censorship and layoffs. Millions of readers, in turn, may learn only what Alden deems fit for them.

It’s not a new pattern. In 2008, a year after billionaire Sam Zell bought the Tribune Co.—publisher of the Chicago Tribune, Los Angeles Times, and other venerable publications—the company filed for bankruptcy, saddled with $13 billion in debt in what’s been called “the deal from hell.”

The march of these buyout barons continues. This summer, New Media Investment Group (owner of GateHouse Media) announced plans to buy Gannett. The $1.38 billion deal would uniteone-sixth of all daily newspapers across the country, affecting 9 million print readers.

New Media anticipates cutting $300 million in costs each year, suggesting layoffs comparable to those at The Denver Post are in the offing—even as the company and its investor owners harvest profits.

Senator Bernie Sanders recently introduced an ambitiousplan of his own, calling for a moratorium on major media mergers and encouraging newsrooms to unionize nationwide.

Newspapers have been critical to American democracy since its founding. By allowing huge corporations to gut newspapers in the name of making a buck, we’re putting a price tag on that democracy when we need it most.

Olivia Snow Smith is a recent graduate of Bard College and the communications intern for Take On Wall Street. This op-ed was adapted from TakeOnWallSt.com and distributed by OtherWords.org.

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Members of the San Francisco Public Bank Coalition rally at San Francisco City Hall to demand the creation of a public bank. (Photo: Kurtis Wu)

California Gov. Gavin Newsom on Wednesday signed into law historic legislation that would allow the state's cities and counties to establish public banks as an alternative to private financial institutions, a move advocates hailed as a "stunning rebuke to the predatory Wall Street megabanks that crashed the global economy in 2007-08."

"Now is our moment in history to lead the nation by re-envisioning finance and recapturing our money to benefit our local communities by building a new system that works for the greater good." —Trinity Tran, Public Bank LA

Trinity Tran, co-founder of Public Bank LA, said Newsom's decision to sign the Public Banking Act (A.B. 857) despite fervent opposition from the state's business lobby "is a testament to the power of grassroots organizing.

"Now is our moment in history to lead the nation by re-envisioning finance and recapturing our money to benefit our local communities by building a new system that works for the greater good." —Trinity Tran, Public Bank LA

Trinity Tran, co-founder of Public Bank LA, said Newsom's decision to sign the Public Banking Act (A.B. 857) despite fervent opposition from the state's business lobby "is a testament to the power of grassroots organizing."

"The people of California just went up against the most powerful corporate lobby in the country—and won," Tran said in a statement. "Now is our moment in history to lead the nation by re-envisioning finance and recapturing our money to benefit our local communities by building a new system that works for the greater good."

The Public Banking Act—which was backed by a diverse coalition of labor unions, climate justice groups, and civil rights organizations—makes California the second state in the U.S. after North Dakota to allow the creation of public banks.

BREAKING: PUBLIC BANKS SIGNED INTO LAW!! On behalf of Californians & advocates nationwide, thank you @GavinNewsom for your leadership on #AB857! CA has enabled its cities to determine how tax revenues are invested to empower our communities. Leading the nation is what we do. pic.twitter.com/ZvFN065tIn

Public banks are intended to use public funds to let local jurisdictions provide capital at interest rates below those charged by commercial banks. The loans could be used for businesses, affordable housing, infrastructure, and municipal projects, among other things.

Proponents say public banks can pursue those projects and support local communities' needs while being free of the pressure to obtain higher profits and shareholder returns faced by commercial banks. Support for public banks also has grown since the financial crisis a decade ago and since Wells Fargo & Co. was embroiled in a slew of customer-abuse scandals in recent years.

The new law sets into motion a pilot program allowing 10 public bank charters in the state over seven years. "These banks can invest in local projects like affordable housing, small businesses, resilient infrastructure, and clean energy, giving communities a voice in their own economic futures," said the California Public Banking Alliance.

Sushil Jacob, senior economic justice attorney with the Lawyers' Committee for Civil Rights of the San Francisco Bay Area, said the law represents the "first step toward repairing communities that were immensely harmed by the 2008 recession, especially communities of color."

"Today, California's communities of color remain disproportionately harmed by Wall Street's predatory practices," said Jacob. "Public banks can make all of our communities whole with equitable lending and non-extractive investing."

In a column for Common Dreams earlier this year, Ellen Brown, founder of the Public Banking Institute, applauded states like California and Washington for pursuing legislation to create state-level public banking systems and said their passage could prove a game-changer for the nation's economy.

"The implications are huge," Brown wrote at the time. "A century after the very successful Bank of North Dakota proved the model, the time has finally come to apply it across the country."

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August 08, 2019

How it works: Fund managers with Wall Street connections can borrow unlimited sums of money to buy out all the shares of some company, usually a retail company like Toys R Us. They then strip the company of its assets and load it up with debt. They then take the company into bankruptcy firing all the employees. Result: millions of good paying middle class jobs are eliminated. Fund managers and their investors become rich.

Debbie Mizen lives in Youngstown, Ohio, and began working at Toys “R” Us in 1987. She was a single mother when she started working and was able to care for her three children on her modest salary. Debbie was an assistant manager for the last 12 years of her career, although she knew she was earning less than male supervisors in the same position. In June 2018, she lost a job she loved when Toys “R” Us liquidated and closed over 800 stores across the country. Debbie found out that her store was closing on same day as her mother’s funeral and was devastated. Since her store closed, she has faced unemployment. When her unemployment checks ran out, she had to take a job in a grocery store collecting grocery deliveries for customers while earning half of what she did at Toys “R” Us. She is turning 67 this year.

Pirate Equity is ruining millions of lives, making fund managers rich and driving (among other factors) the economic divide between the 1% and the 99%. In the last decade pirate equity has led to 1.3 million job losses - mainly in retail jobs. 10 out of the 14 largest retail chain bankruptcies since 2012 were at private equity-acquired chains. Then the Wall Street executives use the carried interest loophole and offshore bank accounts to escape from paying taxes. A wave of high-profile retail bankruptcies in the last few years — including household names like RadioShack, Toys “R” Us, Sports Authority, Payless ShoeSource, Sears, and Kmart — have impacted retailers owned by Wall Street.

All the late night talk shows laughed it up over the supposed demise of Twinkies, Ho Hos, Ding Dongs, Wonder Bread etc as the news came out that Hostess Brands was going bankrupt. But delve beneath the surface and you will find something more akin to a Shakespearean tragedy than talk show banter.

It’s a tale involving two unions, one private equity fund, two hedge funds and a whole cast of former CEOs. There is sacrifice, greed and betrayal. 18,000 workers will be losing their jobs while some vulture capitalists will be walking away with millions. Another vulture capitalist will itself have been devoured in the process.

The simple fact is that the financialization of the US has led to a total disrespect for workers and workers' rights. Workers have been turned into serfs, their jobs turned into playthings for the rich with unlimited capital at their disposal. And we're all supposed to accept this because this is the inevitable outcome of capitalism. Well, not so fast there. Other countries practice a variant of capitalism (jee whiz, you mean there's more than one?) that does not exploit workers, but instead creates meaningful jobs for workers. Well, let's see what could those countries be? Well certainly, some of the European countries look out for their workers, Germany, for example. Unions are strong and workers sit on corporate boards, have a say in the running of the company.

No, it is the American variant of capitalism, not capitalism itself, that has run amok. American capitalism is destroying jobs; it has already destroyed most of the unions which were the countervailing force to the narcissistic and solipsistic demands of the capital markets.

Deals like Hostess have helped make the men running the six largest publicly traded private equity firms collectively the highest-earning executives of any major American industry, according to a joint study that The Times conducted with Equilar, a board and executive data provider. The study covered thousands of publicly traded companies; privately held corporations do not report such data.

On average, the heads of private equity firms earn about 10 times as much as the heads of banks. Take Stephen Schwarzman of the Blackstone Group for example. Last year he earned $799,838,742. Then in second place was Leon Black of Apollo Global Management. He earned $799,838,742. Part of his earnings, no doubt, came from his sale of Hostess Twinkies.

And then there is Mitt Romney, a Presidential candidate no less, who exploited workers with his company Bain Capital. Rolling Stone reported (Greed and Debt: The True Story of Mitt Romney and Bain Capital): "How the GOP presidential candidate and his private equity firm staged an epic wealth grab, destroyed jobs – and stuck others with the bill"

And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a “turnaround specialist,” a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America’s top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.

By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions – placing a massive all-in bet on the rank incompetence of the American press corps. The result has been a brilliant comedy: A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place. That same man then runs for president riding an image of children roasting on flames of debt, choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the subject of the evils of borrowed money than the candidate himself. If Romney pulls off this whopper, you’ll have to tip your hat to him: No one in history has ever successfully run for president riding this big of a lie. It’s almost enough to make you think he really is qualified for the White House.

But the sheer incompetence of the press corps is nothing compared with the total ignorance of the American people when it comes to electing a President. Example #1: Donald Trump, a bloviating, pompous, bait-and-switch, snake oil salesman that the American people elected instead of a competent, experienced, somewhat boring diplomat. So maybe the American people deserve what they get. The Republicans certainly think so. If they can lie their way into positions of power and delude the American people as to their true motives, well, in their mind, that proves that they really do deserve all the riches they can accumulate by any means necessary. Elizabeth Warren to the rescue?

Meanwhile, publications in San Jose, Santa Cruz, Santa Rosa, North Bay, Marin County, San Francisco, Sacramento, Los Angeles, and Monterey Bay each published robust articles recently detailing what a public bank could mean to their local communities. The journalistic push indicates a high-water mark for interest in public banking, and provides advocates around the country with excellent talking points to share.

An article by Jennifer Wadsworth in Santa Cruz’s Good Times, for example, describes one important benefit of a public bank mandated to serve the public interest:

“[T]he broader decline of small banks across the Greater Bay Area reflects a broader trend. … But the rural Midwestern state [of North Dakota] boasts six times the number of locally owned financial institutions than the rest of the country. Its secret? A public entity that supports small private lenders by helping with capitalization and liquidity and allowing them to take on larger loans that would otherwise go to out-of-state megabanks.”

Thomas Marois shows how Costa Rica models a democratic public bank, and why public banks have far greater capacity than we think

Public banking is a way to “democratize” our money, but how can we ensure that the bank is run democratically? Costa Rica has shown the way with its broadly democratic, worker-owned Banco Popular, described in a recent article in Open Democracy by University of London public bank scholar Thomas Marois. Designated Bank of the Year 2018 in Costa Rica by LatinFinance, Banco Popular is governed by a 290-member Workers’ Assembly comprised of representatives from across ten social and economic sectors, 50 percent of whom are women. The bank just announced the availability of 140 billion colones ($240 million) in lower-interest loans for micro, small and medium companies and for housing for families who do not have access to credit from traditional commercial banks.

Marois’ new research also demonstrates that there are nearly 700 public banks around the world that have combined assets nearing $38 trillion — about 48 percent of global GDP. That means 20 percent of all bank assets are publicly owned and controlled — much greater financial capacity than commonly believed. His research contradicts the standard neoliberal narrative that there is no alternative to using private finance for climate finance and other community needs.

“[W]hat we have here is out of control corporate bank socialism. Namely, they reap the profits using other people’s money. They enrich themselves at the top of the company. They make money from money, which isn’t a very productive enterprise. And then they send the bill to Washington when their whole edifice collapses.”

Ellen Brown: Facebook may be more dangerous than Wall Street

In her most recent article in Truthdig, PBI Chair Ellen Brown stresses the dangers of Facebook’s new corporate-controlled Libra cryptocurrency, evidently intended to be a private global currency bypassing governments. She describes the needed alternative:

“A currency intended for trade on a national — let alone international — scale needs to be not only centralized but democratized, responding to the will of the people and their elected leaders, [r]ather than bypassing the existing central banking structure as Facebook plans to do.”

The CA state Senate committee meeting yesterday is an excellent example of a public bank hearing, which advocates can use to inspire and inform their own work. Assemblymembers David Chiu and Miguel Santiago, co-authors of the bill, are both articulate and passionate supporters of AB 857 and press their case to the Senators by focusing on the core issues they predict are the chief concerns of this committee. The Senators ask pointed questions and state their objections or support to which the co-authors respond. Lobbyists for the banking industry state their objections. Many members of the public as well as representatives of CA cities speak in support. Then there's the vote. Much of the work takes place prior to this hearing to enroll support from individual Senators.

Together, we can make 2019 the year public banks win!

Thank you again for your determination and support. Your financial support will help fund our 2019 Campaign for Public Banks to create the BIG PUSH we need now to get public banks established. You can sign on to support and contribute below.

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Public Banking Coalition monthly conference calls

Next call: Sept 13*Please note: We are taking a break from these calls for the summer.*

Once a month, PBI hosts an hour-long Public Banking Coalition conference call in which we introduce the concept of Public Banks, discuss current issues, and give updates on the advances being made for Public Banks all across the country. Calls take place at 12:00pm ET / 9:00am PT on the second Friday of each month.

June 25, 2019

Why Can't the 90% Vote to Raise Taxes on the 10% and Lower Taxes on Themselves?

by John Lawrence, June 25, 2019

The Repubs are Johnny One Notes when it comes to elections. "We will lower your taxes." Of course they lower taxes on the rich (the 10%) much more than they lower them on the 90%. People always fall for this. They always say "The Democrats will raise your taxes." Well now, Bernie and others are saying "We'll raise taxes on the rich, but not on the 90%." That's good because in this country the majority rules, and the 90% can outvote the 10% at least in Presidential and Congressional elections. The Dems, however, should go further. They should say, "Not only will we raise taxes on the rich, we'll lower them on everybody else." That would go over great if the general public could appreciate that much nuance.

Trump's tax cuts blew a whole in the national budget and raised the Federal debt to $22 trillion. Now over a trillion dollars a year just goes to paying interest on the debt. The debt can never be paid off. The American people are being sold a bill of goods and will wind up being perpetual debtors not only nationally but individually. That's just where the power elite wants them. Debtors are more easily controlled than those who have some agency. The only agency the American people have is the fact that majority rules, and they can vote the powerful out of office and vote in people like Bernie Sanders and Elizabeth Warren who stand on the side of the middle class.

Ellen Brown in her latest book, "Banking on the People: Democratizing Money in the Digital Age," has shown the way to a debt free America with low taxes. She has been telling us for years that the Federal government need not borrow money and then pay interest on it. It has the power to generate money and then distribute it into society. The American Congress is given the right in the Constitution to coin money, but it has delegated that right to privately owned banks. Then the Treasury issues bonds which are bought by private investors who expect to be paid interest on those bonds. The big Wall Street banks take a cut on every bond sold.

Recently the Federal Reserve bank has gotten into the act with Quantitative Easing (QE). It buys the bonds from the Wall Street banks and by law returns the interest to the Treasury. These bonds need never be paid off. Net result: the American Treasury gets free money. But instead of this shell game the American government could issue its money directly, and spend it into American society on infrastructure development and in many other ways. This is exactly what other societies, who have control over their own money supply, have done. This is how China manages to spend money on its Belt and Road initiative building infrastructure all over the world without going into debt. Meanwhile the US goes further and further into debt, and in the final analysis it's all because it has delegated the creation of money to privately owned banks including the Federal Reserve.

But there is a better way according to Ms. Brown. Congress could create its own money and spend it directly instead of borrowing it and paying interest on it. This is how Lincoln built the transcontinental railroad and won the Civil War. He issued greenbacks which were money created instead of borrowed by the Federal government. This is how Franklin Roosevelt did it with the Reconstruction Finance Corporation during the Great Depression. The whole thing here is that Congress on behalf of the American people could create its own money tax free and use it any way it pleases like the Green New Deal, for example. It could be used to cancel student loan debt as Bernie wants to do.

These are radical ideas to be sure, but in the age of global warming and the neo-feudalization of the American people, radical ideas are called for. Our Grandkids will thank us for not letting planet earth go up in smoke. Presently, the whole American midsection is being flooded out because it drains most of the water from the ever increasing torrential downfalls. It is in the process of becoming just one big flood plain. Let's get radical to save planet Earth. The first step is to let the American Congress, not privately owned banks, create the money supply and use it to build infrastructure for which there is never enough money under the present system.

Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) speaks to the crowd during the 2019 South Carolina Democratic Party State Convention on June 22, 2019 in Columbia, South Carolina. (Photo: Sean Rayford/Getty Images)

As part of a bold legislative package that would make public colleges and universities tuition-free, Sen. Bernie Sanders on Monday will unveil a plan to wipe out the $1.6 trillion in student loan debt that is saddling an estimated 45 million Americans.

"In a generation hard hit by the Wall Street crash of 2008, it forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the 'crime' of getting a college education." —Sen. Bernie Sanders

"This is truly a revolutionary proposal," Sanders told the Washington Post, which reported the details of the Vermont senator's bill late Sunday. "In a generation hard hit by the Wall Street crash of 2008, it forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the 'crime' of getting a college education."

Sanders, a 2020 Democratic presidential candidate, will introduce his proposal alongside Reps. Ilhan Omar (D-Minn.) and Pramila Jayapal (D-Wash.), who plan to unveil the Student Debt Cancellation Act and the College for All Act in the House.

"I am one of the 45 million people with student debt—45 million people who are held back from pursuing their dreams because of the student debt crisis," Omar tweeted Sunday. "It's why I'm proud to stand with Sen. Sanders and Rep. Jayapal to pass college for all and cancel student debt."

The three lawmakers introduced their proposals in a press conference Monday morning outside the U.S. Capitol building. Watch:

Unlike means-tested plans introduced by other 2020 contenders, Golshan observed, Sanders's legislation would cancel student debt for everyone "regardless of their income or assets."

"While this is a universal program—students from any financial background would benefit from the elimination of tuition—the proposal specifically targets lower-income students by increasing the federal Pell Grant program, tripling funding for the work-study program, and creating a dollar-for-dollar federal match to states to eliminate additional costs related to going to college," Golshan wrote.

According to the Post, Sanders would pay for his plan with "a tax on Wall Street his campaign says will raise more than $2 trillion over 10 years."

"Sanders is proposing to pay for the legislation with a new tax on financial transactions, including a 0.5 percent tax on stock transactions and a 0.1 percent tax on bonds," the Post reported. "Such a levy would curb Wall Street speculation while reducing income inequality, according to a report by the Century Foundation, a left-leaning think tank."

Warren Gunnels, Sanders's staff director, tweeted, "If we could give a multi-trillion bailout to Wall Street, yes we can make college for all a reality."

Sanders echoed Gunnels in a tweet Sunday night, writing, "We bailed out Wall Street in 2008. It's time to tax Wall Street's greed to help the American people."

According to the Post, the Vermont senator's new plan will go beyond the tuition-free public college proposal that was a key plank of his 2016 presidential campaign platform.

"Sanders's bill includes $1.3 billion a year for low-income students at historically black colleges and universities," the Post reported, "and $48 billion per year for eliminating tuition and fees at public schools and universities."

The Vermont senator's debt cancellation proposal comes just weeks after he unveiled a sweeping K-12 education platform that includes a national ban on for-profit charter schools, free universal school meals, and a significant raise for teachers.

"More than one million people default on their student loans each year," Sanders tweeted Sunday. "We have got to make public colleges and universities tuition-free."

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April 17, 2019

Check out the article by Ellen Brown in truthdig or as republished today in the California Free Press on public banking and the progress that is being made all over the country - particularly in the states of California and Washington - to establish public banks. This is exactly the way to fund the Green New Deal, Alexandria Ocasio-Cortez' brainchild which is supported by most progressives. The need to get away from a fossil fuel based economy here and around the world is paramount, but most critics say "it will cost too much". This is what they say about Bernie Sanders' issue, Medicare for All, as well. But a public bank at the Federal level is the perfect way to fund it. States have figured out that funding projects through Wall Street doubles their cost because of interest on loans paid to the likes of Goldman Sachs and JP Morgan Chase. A public bank cuts out the middleman.

The Federal Reserve, through its policy of quantitative easing (QE) is printing money and giving it to Wall Street and the big banks. These banks get the money interest free, but it does not filter down to Joe Six Pack. The banks turn around and pay no interest on savings accounts, but charge exorbitant interest on credit cards and student loans. Thank you, Joe Biden and Bill Clinton. Thank you, Hillary Clinton for sitting on Lloyd Blankfein's lap and accepting a payment of $250,000. for whispering in his ear. The Democrats' association with Wall Street has to go. This is so status quo.

Ellen Brown has written extensively about public banking which serves the needs of the people while cutting out Wall Street as the middleman which rakes off huge profits. There is no need for that. A public bank like the Bank of North Dakota (BND) - the only one in the nation at this time - can provide the funding for infrastructure projects at a fraction of the cost that Wall Street charges for their loans. In addition the BND provides student loans and business loans at interest rates below those of Wall Street and at the end of the day returns all profits to the public treasury. This makes a Green New Deal and Medicare for All feasible.

The US Congress was granted the right by the Constitution to create money. Instead it delegated this function to the privately owned Federal Reserve. The Federal Reserve's main purpose is to serve the banking system and their owners, not to serve the public. This sits right with the presently constituted Congress because they have already been bought off by lobbyists and their wealthy corporate interests. Instead we need a Congress that outlaws lobbying and large campaign donations from wealthy interests, and we need a public bank at the Federal level to fund a Green New Deal so that the planet can be saved from global warming. A wartime like effort is required to do this because we only have 12 more years before global warming hits the runaway level and it's too late.

The conversion from fossil fuels to renewable sources of energy has to be done in such a way that oil and gas workers, many of whom earn well over $100,000 a year are guaranteed jobs in the green industries at the same income level. Otherwise they will be the chief opponents of a Green New Deal. Someone who graduates college with a 4 year degree in petroleum engineering can start out at a salary of over $100,000. Some thought has to be put in to how this conversion from fossil fuels to renewables is to take place, what types of jobs will be created at what salary levels and how the conversion can take place with the least disruption to the economy including family income levels.

The states are well on their way to the establishment of public banks which will decrease their indebtedness and allow them to pursue projects including affordable housing and housing for the homeless. Now the same thing has to be done at the Federal level to support a Green New Deal and Medicare for All. Public banks will cut out the middleman - Wall Street - which has destroyed cities from Birmingham, Alabama to Milan, Italy with their interest rate swaps. If this cannot be pulled off at the Federal level, it will be up to the states to proceed with green infrastructure building and a humane form of Medicare for All.

October 02, 2018

The New York Stock Exchange building looms large on Wall Street in New York City. (Max Pixel)

Wall Street owns the country. That was the opening line of a fiery speech that populist leader Mary Ellen Lease delivered around 1890. Franklin Roosevelt said it again in a letter to Colonel House in 1933, and Sen. Dick Durbin was still saying it in 2009. “The banks—hard to believe in a time when we’re facing a banking crisis that many of the banks created—are still the most powerful lobby on Capitol Hill,” Durbin said in an interview. “And they frankly own the place.”

Wall Street banks triggered a credit crisis in 2008-09 that wiped out over $19 trillion in household wealth, turned some 10 million families out of their homes and cost almost 9 million jobs in the U.S. alone. Yet the banks were bailed out without penalty, while defrauded home buyers were left without recourse or compensation. The banks made a killing on interest rate swaps with cities and states across the country, after a compliant and accommodating Federal Reserve dropped interest rates nearly to zero. Attempts to renegotiate these deals have failed.

In Los Angeles, the City Council was forced to reduce the city’s budget by 19 percent following the banking crisis, slashing essential services, while Wall Street has not budged on the $4.9 million it claims annually from the city on its swaps. Wall Street banks are now collecting more from Los Angeles just in fees than it has available to fix its ailing roads.

Local governments have been in bondage to Wall Street ever since the 19th century despite multiple efforts to rein them in. Regulation has not worked. To break free, we need to divest our public funds from these banks and move them into our own publicly owned banks.

L.A. Takes It to the Voters

Some cities and states have already moved forward with feasibility studies and business plans for forming their own banks. But the city of Los Angeles faces a barrier to entry that other cities don’t have. In 1913, the same year the Federal Reserve was formed to backstop the private banking industry, the city amended its charter to state that it had all the powers of a municipal corporation, “with the provision added that the city shall not engage in any purely commercial or industrial enterprise not now engaged in, except on the approval of the majority of electors voting thereon at an election.”

Under this provision, voter approval would apparently not be necessary for a city owned bank that limited itself to taking the city’s deposits and refinancing municipal bonds as they came due, since that sort of bank would not be a “purely commercial or industrial enterprise” but would simply be a public utility that made more efficient use of public funds. But voter approval would evidently be required to allow the city to explore how public banks can benefit local economic development, rather than just finance public projects.

The L.A. City Council could have relied on this 1913 charter amendment to say “no” to the dynamic local movement led by millennial activists to divest from Wall Street and create a city owned bank. But the City Council chose instead to jump that hurdle by putting the matter to the voters. In July 2018, it added Charter Amendment B to the November ballot. A “yes” vote will allow the creation of a city owned bank that can partner with local banks to provide low-cost credit for the community, following the stellar precedent of the century old Bank of North Dakota, currently the nation’s only state-owned bank. By cutting out Wall Street middlemen, the Bank of North Dakota has been able to make below-market credit available to local businesses, farmers and students while still being more profitable than some of Wall Street’s largest banks. Following that model would have a substantial upside for both the small business and the local banking communities in Los Angeles.

Rebutting the Opposition

On Sept. 20, the Los Angeles Times editorial board threw cold water on this effort, calling the amendment “half-baked” and “ill-conceived,” and recommending a “no” vote.

Yet not only was the measure well-conceived, but L.A. City Council President Herb Wesson has shown visionary leadership in recognizing its revolutionary potential. He sees the need to declare our independence from Wall Street. He has said that the country looks to California to lead, and that Los Angeles needs to lead California. The people deserve it, and the millennials whose future is in the balance have demanded it.

The City Council recognizes that it’s going to be an uphill battle. Charter Amendment B just asks voters, “Do you want us to proceed?” It is merely an invitation to begin a dialogue on creating a new kind of bank—one geared to serving the people rather than Wall Street.

Amendment B does not give the City Council a blank check to create whatever bank it likes. It just jumps the first of many legal hurdles to obtaining a bank charter. The California Department of Business Oversight (DBO) will have the last word, and it grants bank charters only to applicants that are properly capitalized, collateralized and protected against risk. Public banking experts have talked to the DBO at length and understand these requirements; and a detailed summary of a model business plan has been prepared, to be posted shortly.

The L.A. Times editorial board erroneously compares the new effort with the failed Los Angeles Community Development Bank, which was founded in 1992 and was insolvent a decade later. That institution was not a true bank and did not have to meet the DBO’s stringent requirements for a bank charter. It was an unregulated, non-depository, nonprofit loan and equity fund, capitalized with funds that were basically a handout from the federal government to pacify the restless inner city after riots broke out in 1992—and its creation was actually supported by the L.A. Times.

The Times also erroneously cites a 2011 report by the Boston Federal Reserve contending that a Massachusetts state-owned bank would require $3.6 billion in capitalization. That prohibitive sum is regularly cited by critics bent on shutting down the debate without looking at the very questionable way in which it was derived. The Boston authors began with the $2 million used in 1919 to capitalize the Bank of North Dakota, multiplied that number up for inflation, multiplied it up again for the increase in GDP over a century and multiplied it up again for the larger population of Massachusetts. This dubious triple-counting is cited as serious research, although economic growth and population size have nothing to do with how capital requirements are determined.

Bank capital is simply the money that is invested in a bank to leverage loans. The capital needed is based on the size of the loan portfolio. At a 10 percent capital requirement, $100 million is sufficient to capitalize $1 billion in loans, which would be plenty for a startup bank designed to prove the model. That sum is already more than three times the loan portfolio of the California Infrastructure and Development Bank, which makes below-market loans on behalf of the state. As profits increase the bank’s capital, more loans can be added. Bank capitalization is not an expenditure but an investment, which can come from existing pools of unused funds or from a bond issue to be repaid from the bank’s own profits.

Deposits will be needed to balance a $1 billion loan portfolio, but Los Angeles easily has them—they are now sitting in Wall Street banks having no fiduciary obligation to reinvest them in Los Angeles. The city’s latest Comprehensive Annual Financial Report shows a Government Net Position of over $8 billion in Cash and Investments (liquid assets), plus proprietary, fiduciary and other liquid funds. According to a 2014 study published by the Fix LA Coalition:

Together, the City of Los Angeles, its airport, seaport, utilities and pension funds control $106 billion that flows through financial institutions in the form of assets, payments and debt issuance. Wall Street profits from each of these flows of money not only through the multiple fees it charges, but also by lending or leveraging the city’s deposited funds and by structuring deals in unnecessarily complex ways that generate significant commissions.

Despite having slashed spending in the wake of revenue losses from the Wall Street-engineered financial crisis, Los Angeles is still being crushed by Wall Street financial fees, to the tune of nearly $300 million—just in 2014. The savings in fees alone from cutting out Wall Street middlemen could thus be considerable, and substantially more could be saved in interest payments. These savings could then be applied to other city needs, including for affordable housing, transportation, schools and other infrastructure.

In 2017, Los Angeles paid $1.1 billion in interest to bondholders, constituting the wealthiest 5 percent of the population. Refinancing that debt at just 1 percent below its current rate could save up to 25 percent on the cost of infrastructure, half the cost of which is typically financing. Consider, for example, Proposition 68, a water bond passed by California voters last summer. Although it was billed as a $4 billion bond, the total outlay over 40 years at 4 percent will actually be $8 billion. Refinancing the bond at 3 percent (the below-market rate charged by the California Infrastructure and Development Bank) would save taxpayers nearly $2 billion on the overall cost of the bond.

Finding the Political Will

The numbers are there to support the case for a city owned bank, but a critical ingredient in effecting revolutionary change is finding the political will. Being first in any innovation is always the hardest. Reasons can easily be found for saying “no.” What is visionary and revolutionary is to say, “Yes, we can do this.”

As California goes, so goes the nation, and legislators around the country are watching to see how it goes in Los Angeles. Rather than criticism, Council President Wesson deserves high praise for stepping forth in the face of predictable pushback and daunting legal hurdles to lead the country in breaking free from our centuries-old subjugation to Wall Street exploitation.

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including "Web of Debt" and "The Public Bank Solution."

Central banks buying stocks are effectively nationalizing U.S. corporations just to maintain the illusion that their “recovery” plan is working. … At first, their novel entry into the stock market was only intended to rescue imperiled corporations, such as General Motors during the first plunge into the Great Recession, but recently their efforts have shifted to propping up the entire stock market via major purchases of the most healthy companies on the market.

The U.S. Federal Reserve, which bailed out General Motors in a rescue operation in 2009, was prohibited from lending to individual companies under the Dodd-Frank Act of 2010, and it is legally barred from owning equities. It parks its reserves instead in bonds and other government-backed securities. But other countries have different rules, and central banks are now buying individual stocks as investments, with a preference for big tech companies like Amazon, Apple, Facebook and Microsoft. Those are the stocks that dominate the market, and central banks are aggressively driving up their value. Markets, including the U.S. stock market, are thus literally being rigged by foreign central banks.

The result, as noted in a January 2017 article at Zero Hedge, is that central bankers, “who create fiat money out of thin air and for whom ‘acquisition cost’ is a meaningless term, are increasingly nationalizing the equity capital markets.” Or at least they would be nationalizing equities, if they were actually “national” central banks. But the Swiss National Bank, the biggest single player in this game, is 48 percent privately owned, and most central banks have declared their independence from their governments. They march to the drums not of government but of private industry.

Marking the 10th anniversary of the 2008 collapse, former Fed chairman Ben Bernanke and former Treasury secretaries Timothy Geithner and Henry Paulson wrote in a Sept. 7 New York Times op-edthat the Fed’s tools needed to be broadened to allow it to fight the next anticipated economic crisis, including allowing it to prop up the stock market by buying individual stocks. To investors, propping up the stock market may seem like a good thing, but what happens when the central banks decide to sell? The Fed’s massive $4-trillion economic support is now being taken away, and other central banks are expected to follow. Their U.S. and global holdings are so large that their withdrawal from the market could trigger another global recession. That means when and how the economy will collapse is now in the hands of central bankers.

Moving Goal Posts

The two most aggressive central bank players in the equity markets are the Swiss National Bank and the Bank of Japan. The goal of the Bank of Japan, which now owns 75 percent of Japanese exchange-traded funds, is evidently to stimulate growth and defy longstanding expectations of deflation. But the Swiss National Bank is acting more like a hedge fund, snatching up individual stocks because “that is where the money is.”

About 20 percent of the SNB’s reserves are in equities, and more than half of that is in U.S. equities. The SNB’s goal is said to be to counteract the global demand for Swiss francs, which has been driving up the value of the national currency, making it hard for Swiss companies to compete in international trade. The SNB does this by buying up other currencies, and because it needs to put them somewhere, it’s putting that money in stocks.

That is a reasonable explanation for the SNB’s actions, but some critics suspect it has ulterior motives. Switzerland is home to the Bank for International Settlements, the “central bankers’ bank” in Basel, where central bankers meet regularly behind closed doors. Dr. Carroll Quigley, a Georgetown history professor who claimed to be the historian of the international bankers, wrote of this institution in” Tragedy and Hope” in 1966:

[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central bank,s which were themselves private corporations.

The key to their success, said Quigley, was that they would control and manipulate the money system of a nation while letting it appear to be controlled by the government. The economic and political systems of nations would be controlled not by citizens but by bankers, for the benefit of bankers. The goal was to establish an independent (privately owned or controlled) central bank in every country. Today, that goal has largely been achieved.

In a paper presented at the 14th Rhodes Forum in Greece in October 2016, Dr. Richard Werner, director of international development at the University of Southampton in the United Kingdom, argued that central banks have managed to achieve total independence from government and total lack of accountability to the people, and that they are now in the process of consolidating their powers. They control markets by creating bubbles, busts and economic chaos. He pointed to the European Central Bank, which was modeled on the disastrous earlier German central bank, the Reichsbank. The Reichsbank created deflation, hyperinflation and the chaos that helped bring Adolf Hitler to power.

The problem with the Reichsbank, said Werner, was its excessive independence and its lack of accountability to German institutions and Parliament. The founders of post-war Germany changed the new central bank’s status by significantly curtailing its independence. Werner wrote, “The Bundesbank was made accountable and subordinated to Parliament, as one would expect in a democracy. It became probably the world’s most successful central bank.”

But today’s central banks, he said, are following the disastrous Reichsbank model, involving an unprecedented concentration of power without accountability. Central banks are not held responsible for their massive policy mistakes and reckless creation of boom-bust cycles, banking crises and large-scale unemployment. Youth unemployment now exceeds 50 percent in Spain and Greece. Many central banks remain in private hands, including not only the Swiss National Bank but the Federal Reserve Bank of New York and the Italian, Greek and South African central banks.

Banks and Central Banks Should Be Made Public Utilities

Werner’s proposed solution to this dangerous situation is to bypass both the central banks and the big international banks and decentralize power by creating and supporting local not-for-profit public banks. Ultimately, he envisions a system of local public money issued by local authorities as receipts for services rendered to the local community. Legally, he noted, 97 percent of the money supply is already just private company credit, which can be created by any company, with or without a banking license. Governments should stop issuing government bonds, he said, and instead fund their public sector credit needs through domestic banks that create money on their books (as all banks have the power to do). These banks could offer more competitive rates than the bond markets and could stimulate the local economy with injections of new money. They could also put the big bond underwriting firms that feed on the national debt out of business.

Abolishing the central banks is one possibility, but if they were recaptured as public utilities, they could serve some useful purposes. A central bank dedicated to the service of the public could act as an unlimited source of liquidity for a system of public banks, eliminating bank runs since the central bank cannot go bankrupt. It could also fix the looming problem of an unrepayable federal debt, and it could generate “quantitative easing for the people,” which could be used to fund infrastructure, low-interest loans to cities and states, and other public services.

The ability to nationalize companies by buying them with money created on the central bank’s books could also be a useful public tool. The next time the mega-banks collapse, rather than bailing them out, they could be nationalized and their debts paid off with central bank-generated money.

There are other possibilities. Former assistant treasury secretary Paul Craig Roberts argues that we should also nationalize the media and the armaments industry. Researchers at the Democracy Collaborative have suggested nationalizing the large fossil fuel companies by simply purchasing them with Fed-generated funds. In a September 2018 policy paper titled “Taking Climate Action to the Next Level,” the researchers wrote, “This action might represent our best chance to gain time and unlock a rapid but orderly energy transition, where wealth and benefits are no longer centralized in growth-oriented, undemocratic, and ethically dubious corporations, such as ExxonMobil and Chevron.”

Critics will say this would result in hyperinflation, but an argument can be made that it wouldn’t. That argument will have to wait for another article, but the point here is that massive central bank interventions that were thought to be impossible in the 20th century are now being implemented in the 21st, and they are being done by independent central banks controlled by an international banking cartel. It is time to curb central bank independence. If their powerful tools are going to be put to work, it should be in the service of the public and the economy.

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including "Web of Debt" and "The Public Bank Solution."

July 28, 2018

Most people are amazed to find out that, when a bank loans you money, it creates it out of thin air. It is not backed by gold or anything else. Nixon took us off the gold standard in 1971. Before that people could cash in US dollars for an equivalent amount of gold. Money not backed by anything is called fiat money. It is created by private banks in the US when they loan you money. In China the government creates the fiat money. A new wrinkle was added during the 2008 financial crisis. Money was also created by the US' central bank, the Federal Reserve which is privately not publicly owned. That money was given to the big banks to keep them solvent. It did not trickle down to the average citizen.

China uses fiat money to keep its workers employed. In addition to activities within China, they are building infrastructure in other countries recreating the Silk Road which was a trade route that connected the Eurasian land mass. It is called the Belt and Road initiative. Since the US government has no mechanism to create fiat money(despite the fact that Abraham Lincoln did it during the Civil War with the introduction of greenbacks), the only fiat money being created in the US goes to big banks and through them to hedge funds which have connections with the big banks.

Fiat money in the US fuels the class division between the 1% and the 99% because it is only made available to Wall Street which actually owns the Fed. In China fiat money not only keeps its workers employed, they are employed doing something constructive - building infrastructure. The only way the US could build much needed infrastructure in the US is for the Treasury to issue more bonds which would only add to the national debt. If there were a true government owned central bank in the US, it could create money to build infrastructure thus creating jobs without the US government going into debt.

China just might have a better way to create fiat money and use it for a constructive purpose. The US fiat money goes mainly to hedge funds which use it to destroy businesses as was the case with the recent Toys R US and Hostess fiascoes. Instead of using fiat money to create jobs, in the US jobs are destroyed when a hedge fund takes a business bankrupt after loading it with debt, extracting money in management fees and shutting it down when it collapses under the weight of all that debt. Employees lose their jobs with no severance pay as was the case with Toys R Us.

China is using fiat money to build the economies of China and other nations from the ground up keeping its workers gainfully employed at the same time. The US is letting its infrastructure and its work force wither while making banks and bank connected hedge funds rich.

July 05, 2018

As reported yesterday in Ellen Brown's latest article, the voters in Los Angeles will get a chance to vote on whether or not to establish a public bank of Los Angeles. This is the first time the establishment of a public bank has been put to the vote. The push for this is the fact that the cannabis industry needs a place to park their money. Right now it's an all cash under the table business. That's because the Federal government still makes marijuana illegal although it is legal in several states including California. California and the rest of the world, in fact, is pulling away from the US Federal government in terms of its collusion with Wall Street. Cities and states are finally waking up to the fact that all the fees they are paying to Wall Street could be kept at home with the establishment of a public bank.

The LA bank would be state chartered, not Federally chartered. The big thing going for it is that there is already an example of how a public bank would operate in the Bank of North Dakota. Using that model, other cities and states could establish their own banks and detach themselves from the US Federal Reserve bank which is the US central bank. That bank bailed out Wall Street during the 2008 banking crisis, but did nothing to help the average American. That's because it's owned by Wall Street, not the American people. It is privately not publicly owned. During the 2008 crisis, while many states and cities were brought to their knees and thousands lost their homes from foreclosures, North Dakota chugged along very nicely, thank you, because it wasn't beholden to Wall Street.

The main fact about public banks, if LA can pull it off, is that the City will be millions of dollars richer because money won't be siphoned off to Wall Street. It can use the money to solve their infrastructure problem and build housing to solve their homeless crisis. If they are successful, many other cities and states will surely follow suit. This is all part of the worldwide trend for countries, cities and states to detach themselves from dependence on the US dollar and Wall Street. The US dollar has gone from the world's reserve currency to the world's bully currency. US Presidents have used sanctions to "discipline" other countries. This is all because of the world's dependence on the US dollar and Wall Street which controls all the levers and buttons having to do with the US dollar. Freedom for the world's nations means they can buy and sell with whomever they please and do it in their own currencies without having to buy and sell with dollars.

Freedom for cities and states means they can do their own banking without dependence on Wall Street. That means the establishment of public banks and millions more for cities like LA, that much less for Wall Street.

June 09, 2018

Even the big guys expect the American economy to crash again as it did in 2018. But they don't care. They will have made their money by then. They don't care if the chickens come home to roost on the Federal debt either. If the US becomes too insufferable, they will take their money and go elsewhere. Any country would accept a million dollar bribe in order to get in. So we see the banks are at it again. They have eviscerated Dodd-Frank, the banking legislation that was supposed to say to the banking industry and the rest of America, NEVER AGAIN. Hah, they know it will happen again. Their profits are predicated on the fact that it will happen again and they don't care. They will have made their killing by then.

Same goes for CEOs. They don't care if they get fired a few years down the line after they have made their killing. They don;'t care if their company becomes unprofitable at some point in time. They just want to get that stock price up as far as possible before the collapse, get their bonuses and options and get out. They will have made their killing before their company becomes a worthless hulk. Hedge fund managers think the same way. They're not interested in building a company of value for the long term. No, they will lay off their employees to please Wall Street. Get that stock price up, Wall Street tells them, and they comply because their personal profits are based on the stock price, not how well they build the company for the long term.

Short term profits are all that's important to those who wield power in the global economy presided over by the almighty dollar. We have already seen what happens to countries that don't play ball: sanctions or the threat of sanctions. That wouldn't be possible if the US dollar did not hold sway. Even US allies are being forced to do things against their better judgment because the US told them to do it. Of course we have total nut cases running the US at the present time. They also are only in it for the money and the power. Power is an aphrodisiac. The more of it they have, the more of it they want.

If the economy comes crashing down, if the national debt becomes unpayable, if there is no money for social security or Medicare, the prevailing power and money brokers could care less. They will have made their killing and gotten out leaving the rest of us with the hollowed out shell of debt we'll be paying off for centuries..

California needs to spend more than $700 billion on infrastructure over the next decade. Where will this money come from? The $1.5 trillion infrastructure initiative unveiled by President Trump in February includes only $200 billion in federal funding for infrastructure projects across the U.S., and less than that after factoring in the billions in tax cuts in infrastructure-related projects.

The rest is to come from cities, states, private investors, and public-private partnerships. And since city and state coffers are depleted, that chiefly means private investors and PPPs, which have a shady history at best.

At the same time, California has over $700 billion parked in private banks earning minimal interest, private equity funds that contributed to the affordable housing crisis, and “shadow banks”—unregulated financial institutions of the sort that caused the banking collapse of 2008. If California had a public infrastructure bank chartered to take deposits, some of these funds could be used to generate credit for the state while remaining safely on deposit in the bank.

California’s $700 billion is in funds of various sorts tucked around the state, including $500 billion in CalPERS and CalSTRS, the state’s massive public pension funds. These pools of money are restricted in how they can be spent and are either sitting in banks drawing a modest interest or invested with Wall Street asset managers and private equity funds. Those funds are not obligated to invest the money in California, and are vulnerable to losses from Wall Street’s tendency to overextend itself into risky investments. In 2009, for example, CalPERS and CalSTRS reported almost $100 billion in losses from investments gone awry.

In 2015, the company was fined $12 million by the SEC for that sort of conflict; and in 2015, it was fined $3.5 million for providing flawed data to German regulators. BlackRock also invests clients’ money in companies like oil company Exxon and food and beverage company Nestle, which have been criticized for not serving California’s interests and exploiting state resources.

The infrastructure bank option

There is another alternative. California’s pools of idle funds can’t be spent because they must be saved for a “rainy day” or for future pension fund payouts; but they could be deposited or invested in a publicly owned bank, where they could form the deposit base for infrastructure loans. California is now the fifth largest economy in the world, trailing only Germany, Japan, China, and the United States. Germany, China, and other Asian countries are addressing their infrastructure challenges through public infrastructure banks that leverage pools of funds into loans for needed construction.

China not only has its own China Infrastructure Bank, but also has established the Asian Infrastructure Investment Bank, whose members include many Asian and Middle Eastern countries, including Australia, New Zealand, and Saudi Arabia. Both banks are helping to fund China’s trillion-dollar “One Belt One Road” infrastructure initiative.

The IBank could be expanded to address California’s infrastructure needs.

As for California, it already has an infrastructure bank: the California Infrastructure and Development Bank, also known as IBank. But the IBank is a “bank” in name only. It cannot take deposits or leverage capital into loans. What IBank does have is the ability to save the state a lot of money. Financing infrastructure through the municipal bond market accounts for half the cost of infrastructuredue to the debt load involved.

One example where this is made clear is with Proposition 68, a statewide ballot measure that voters approved in the June 5 primary election which authorizes $4.1 billion in bonds for parks, environmental, and flood protection programs. The true cost of the measure is $200 million per year over 40 years in additional interest, bringing the total to $8 billion. California’s IBank, which funds infrastructure at 3 percent, could finance the same bill over 30 years for $2.1 billion—a nearly 50 percent reduction.

That’s if it were adequately capitalized, but IBank is seriously underfunded because the California Department of Finance returned over half of its allotted funds to the General Fund to repair the state’s budget after the dot-com market collapse in 2001. However, IBank has 20 years’ experience in making prudent infrastructure loans at below municipal bond rates, and its clients are limited to municipal governments and other public entities, making them safe bets underwritten by their local tax bases. The IBank could be expanded to address California’s infrastructure needs, drawing deposits and capital from its many pools of idle funds across the state and reducing costs significantly.

A better use for pension money

In an illuminating 2017 paper for University of California, Berkeley’s Haas Institute titled “Funding Public Pensions,” policy consultant Tom Sgouros showed that the push to put pension fund money into risky high-yield investments comes from a misguided application of accounting rules.

The error results from treating governments like private companies that can be liquidated out of existence. He argues that public pension funds can be safely operated on a pay-as-you-go basis, just as they were for 50 years before the 1980s. Payments to pensioners can be guaranteed by the state, which legally cannot go bankrupt and has a perpetual tax base to draw on.

A public bank can keep the state’s own funds at home working for the state.

That accounting change would take the pressure off the pension boards and free up hundreds of billions of dollars in taxpayer funds. Some portion of that money could then be deposited in publicly owned banks, which in turn could generate the low-cost credit needed to fund the infrastructure and services that taxpayers expect from their governments.

Note that these deposits would not be spent. Pension funds, rainy day funds, and other pools of government money can provide the liquidity for loans while remaining on deposit in the bank, available for withdrawal on demand by the government depositor.

Even mainstream economists now acknowledge that banks do not lend their deposits but actually create deposits when they make loans. The bank borrows as needed to cover withdrawals, but not all funds are withdrawn at once. And a government bank can borrow its own deposits much more cheaply than local governments can borrow on the bond market. Through their own public bank, government entities can thus effectively borrow at bankers’ rates plus operating costs, cutting out go-betweens.

Unlike borrowing through bonds, which merely recirculate existing funds, borrowing from a bank creates new money, which will stimulate economic growth and come back to the state in the form of new taxes and pension premiums. A working paper published by the San Francisco Federal Reserve in 2012 found that one dollar invested in infrastructure generates at least two dollars in GSP (state GDP), and roughly four times more than average during economic downturns.

A public bank can keep the state’s own funds at home working for the state. By expanding California’s existing infrastructure bank into a chartered bank authorized to take deposits of public money, the state can leverage its existing funds into municipal loans to meet its infrastructure needs while the funds remain safely on deposit in the bank.

This article was originally published on Truthdig.comand has been edited and condensed for YES! Magazine.

June 04, 2018

On Wednesday, Federal bank regulators proposed to allow Wall Street more freedom to make riskier bets with federally-insured bank deposits – such as the money in your checking and savings accounts.

The proposal waters down the so-called “Volcker Rule” (named after former Fed chair Paul Volcker, who proposed it). The Volcker Rule was part of the Dodd-Frank Act, passed after the near meltdown of Wall Street in 2008 in order to prevent future near meltdowns.

The Volcker Rule was itself a watered-down version of the 1930s Glass-Steagall Act, enacted in response to the Great Crash of 1929. Glass-Steagall forced banks to choose between being commercial banks, taking in regular deposits and lending them out, or being investment banks that traded on their own capital.

Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.

Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.

Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.

Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008.

Why should banks ever be permitted to use peoples’ bank deposits – insured by the federal government – to place risky bets on the banks’ own behalf? Bankers say the tougher regulatory standards put them at a disadvantage relative to their overseas competitors.

Baloney. Since the 2008 financial crisis, Europe has been more aggressive than the United States in clamping down on banks headquartered there. Britain is requiring its banks to have higher capital reserves than are so far contemplated in the United States.

The real reason Wall Street has spent huge sums trying to water down the Volcker Rule is that far vaster sums can be made if the Rule is out of the way. If you took the greed out of Wall Street all you’d have left is pavement.

As a result of consolidations brought on by the Wall Street bailout, the biggest banks today are bigger and have more clout than ever. They and their clients know with certainty they will be bailed out if they get into trouble, which gives them a financial advantage over smaller competitors whose capital doesn’t come with such a guarantee. So they’re becoming even more powerful.

The only answer is to break up the giant banks. The Sherman Antitrust Act of 1890 was designed not only to improve economic efficiency by reducing the market power of economic giants like the railroads and oil companies but also to prevent companies from becoming so large that their political power would undermine democracy.

The sad lesson of Dodd-Frank and the Volcker Rule is that Wall Street is too powerful to allow effective regulation of it. America should have learned that lesson in 2008 as the Street brought the rest of the economy - and much of the world - to its knees.

If Trump were a true populist on the side of the people rather than powerful financial interests, he’d lead the way, as did Teddy Roosevelt starting in 1901.

But Trump is a fake populist. After all, he appointed the bank regulators who are now again deregulating Wall Street. Trump would rather stir up public rage against foreigners than address the true abuses of power inside America.

So we may have to wait until we have a true progressive populist president. Or until Wall Street nearly implodes again – robbing millions more of their savings, jobs, and homes. And the public once again demands action.

For years, armies of bank lobbyists and executives have groaned about how financial rules are hurting them. But there's a big problem with their story—banks are making record profits," Sen. Elizabeth Warren (D-Mass.) concluded in a tweet on Tuesday. (Photo: Alex Proimos/Flickr/cc)

As America's largest corporations continue their unprecedented stock buyback spree in the wake of President Donald Trump's $1.5 trillion tax cut, new government data published on Tuesday showed that U.S. banks are also smashing records thanks to the GOP tax law, raking in $56 billion in net profits during the first quarter of 2018—an all-time high.

"The Trump/Republican tax plan has been nothing but a giant gift to corporations so that executives and shareholders can get richer." —Sen. Bernie Sanders (I-Vt.)

The new data, released by the Federal Deposit Insurance Corporation (FDIC), comes as the House of Representatives is gearing up to pass a bipartisan deregulatory measure that would reward massive Wall Street banks like JPMorgan Chase and Citigroup while dramatically increasing the risk of another financial crisis.

As Common Dreamsreported, the Senate easily passed the bill in March with the help of 16 Democrats.

The banking industry's record-shattering profits fit with an entirely predictable pattern that has emerged following the passage of the GOP tax bill last December: America's most profitable corporations are posting obscene profits and using that cash to reward wealthy shareholders through stock buybacks while investing little to nothing in workers, despite their lofty promises.

"For years, armies of bank lobbyists and executives have groaned about how financial rules are hurting them. But there's a big problem with their story—banks are making record profits." —Sen. Elizabeth Warren (D-Mass.)

According to a CNN analysis published on Sunday, "S&P 500 companies showered Wall Street with at least $178 billion of stock buybacks during the first three months of 2018." As Common Dreamsreported earlier this month, major corporations are on track to send $1 trillion to rich investors through buybacks and dividend increases by the end of the year.

Most Americans, meanwhile, have said they are seeing very few noticeable benefits from the massive tax cuts and—according to a new study by United Way—nearly half of the U.S. population is still struggling to afford basic necessities like food, housing, and healthcare.

"The Trump/Republican tax plan has been nothing but a giant gift to corporations so that executives and shareholders can get richer," Sen. Bernie Sanders (I-Vt.) wrote in a Facebook post on Tuesday. "We've got to repeal the outrageous corporate welfare of this tax plan and pass real tax reform that actually helps working families—not the one percent."

Instead of addressing the deep-seated financial struggles much of the American public is facing even as the stock market continues to soar and as Trump boasts of an economic boom, Congress is preparing to provide an even greater windfall to wealthy bankers on Tuesday by gutting crucial post-crisis regulations and putting taxpayers on the hook for yet another bailout.

This morning, it was announced that America’s banking sector hit a new record high of $56 billion in net income in the first quarter of 2018.

"For years, armies of bank lobbyists and executives have groaned about how financial rules are hurting them. But there's a big problem with their story—banks are making record profits," Sen. Elizabeth Warren (D-Mass.) concluded in a tweet on Tuesday. "Congress has done enough favors for big banks—the House should reject the Bank Lobbyist Act."

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May 03, 2018

When Federal Reserve Chair Janet Yellen left her post in 2018, she secured a spot at the Brookings Institution, a century-old research “think-tank” in the heart of Washington, D.C. Naturally, she also hit the speaking circuit. Her entrée into the upper echelons of revolving-door politics came with a hefty fee.

At a swanky locale in the ultra-expensive Tribeca neighborhood in New York City, Yellen soothed a bunch of A-list elites, saying that inflation wasn’t so high and that rate increases wouldn’t come too quickly. In doing so, she was simply following in the footsteps of her predecessor, Ben Bernanke. After leaving the same post, Bernanke launched his speaking career with, among others, a speech in the United Arab Emirates for which he was paid $250,000. This topped his yearly income at the Fed by 25 percent in one go.

While Bernanke scored big in the Middle East, Yellen’s talk was closer to home. Welcome to Wall Street, Janet. There was a reason for her landing in downtown Manhattan. She assured the well-coifed pack of 1 percenters that she could speak only for herself—it was important to distinguish that she would not be a brand ambassador on behalf of her successor (and once-upon-a-time number two guy) Jerome Powell. Yet, she knew that somehow her words would escape into the public ether.

They would be comforting words for the financial moguls. For the top 10 percent of the country that own 84 percent of the stock market, her remarks invoked confidence that the status quo of cheap money flowing from the Fed would be preserved. The boat would not be rocked. They could continue enjoying their meteoric rise from the depths of the financial crisis and know their money would remain safe after a decade of the Fed’s “quantitative easing” (QE) policies.

And let’s face it, the event went largely unnoticed. For Washington, the “Trump Show” is in town now. For Wall Street, even during the recent volatility waves, times are still relatively good. That’s why, especially now, understanding what is brewing inside and outside the Fed matters.

From the left to the right of the American political spectrum, few are questioning what the connection between the Fed’s largesse and the financial markets really means. The biggest banks have been experiencing largely unregulated, unlimited, support in the form of Fed policy that has nothing to do with saving, or helping, the Main Street economy.

You can look no further than the latest trend over the last year. The sheer record number of stock buybacks since the financial crisis from the banking sector and other corporate sectors is explosive. Heady stock market levels converted an influx of cheap money into a new kind of share value, one predicated on conjured capital.

Last year, the Fed blessed record stock buybacks for its members (private banks) without a word, let alone a demand, about using that money for true Main Street pursuits. The current Fed leader, Jerome Powell, and other incoming high-level Fed appointees have taken that a step further. They have now indicated that they want to further loosen the rules over what banks can do.

This year alone, the ongoing central bank policy (even with a few rate hikes along the way) is on pace to fuel over $1 trillion worth of U.S. S&P 500 corporate stock repurchases. This signals that if a bank—or major company—obtains minimal interest rates when borrowing money, they will borrow more.

They have and will continue to use that fresh debt to buy their own stocks, catapulting their CEOs and executives to ever higher compensation levels. Meanwhile, the taxpayers of America are left with a shrinking middle class and diminished economic upward mobility.

On March 31 the Federal Reserve raised its benchmark interest rate for the sixth time in three years and signaled its intention to raise rates twice more in 2018, aiming for a Fed funds target of 3.5 percent by 2020. LIBOR (the London Interbank Offered Rate) has risen even faster than the Fed funds rate, up to 2.3 percent from just 0.3 percent 2 1/2 years ago. LIBOR is set in London by private agreement of the biggest banks, and the interest on $3.5 trillion globally is linked to it, including $1.2 trillion in consumer mortgages.

Alarmed commentators warn that global debt levels have reached $233 trillion, more than three times global GDP, and that much of that debt is at variable rates pegged either to the Fed’s interbank lending rate or to LIBOR. Raising rates further could push governments, businesses and homeowners over the edge. In its Global Financial Stability report in April 2017, the International Monetary Fund warned that projected interest rises could throw 22 percent of U.S. corporations into default.

Then there is the U.S. federal debt, which has more than doubled since the 2008 financial crisis, shooting up from $9.4 trillion in mid-2008 to over $21 trillion now. Adding to that debt burden, the Fed has announced it will be dumping its government bonds acquired through quantitative easing at the rate of $600 billion annually. It will sell $2.7 trillion in federal securities at the rate of $50 billion monthly beginning in October. Along with a government budget deficit of $1.2 trillion, that’s nearly $2 trillion in new government debt that will need financing annually.

If the Fed follows through with its plans, projections are that by 2027, U.S. taxpayers will owe $1 trillion annually just in interest on the federal debt. That is enough to fund President Trump’s original trillion-dollar infrastructure plan every year. And it is a direct transfer of wealth from the middle class to the wealthy investors holding most of the bonds. Where will this money come from? Even crippling taxes, wholesale privatization of public assets and elimination of social services will not cover the bill.

With so much at stake, why is the Fed increasing interest rates and adding to government debt levels? Its proffered justifications don’t pass the smell test.

‘Faith-Based’ Monetary Policy

In setting interest rates, the Fed relies on a policy tool called the “Phillips curve,” which allegedly shows that as the economy nears full employment, prices rise. The presumption is that workers with good job prospects will demand higher wages, driving prices up. But the Phillips curve has proved virtually useless in predicting inflation, according to the Fed’s own data. Former Fed Chairman Janet Yellen has admitted that the data fail to support the thesis, and so has Fed Governor Lael Brainard. Minneapolis Fed President Neel Kashkari calls the continued reliance on the Phillips curve “faith-based” monetary policy. But the Federal Open Market Committee (FOMC), which sets monetary policy, is undeterred.

“Full employment” is considered to be 4.7 percent unemployment. When unemployment drops below that, alarm bells sound and the Fed marches into action. The official unemployment figure ignores the great mass of discouraged unemployed who are no longer looking for work, and it includes people working part-time or well below capacity. But the Fed follows models and numbers, and as of this month, the official unemployment rate had dropped to 4.3 percent. Based on its Phillips curve projections, the FOMC is therefore taking steps to aggressively tighten the money supply.

The notion that shrinking the money supply will prevent inflation is based on another controversial model, the monetarist dictum that “inflation is always and everywhere a monetary phenomenon”: Inflation is always caused by “too much money chasing too few goods.” That can happen, and it is called “demand-pull” inflation. But much more common historically is “cost-push” inflation: Prices go up because producers’ costs go up. And a major producer cost is the cost of borrowing money. Merchants and manufacturers must borrow in order to pay wages before their products are sold, to build factories, buy equipment and expand. Rather than lowering price inflation, the predictable result of increased interest rates will be to drive consumer prices up, slowing markets and increasing unemployment—another Great Recession. Increasing interest rates is supposed to cool an “overheated” economy by slowing loan growth, but lending is not growing today. Economist Steve Keen has shown that at about 150 percent private debt to GDP, countries and their populations do not take on more debt. Rather, they pay down their debts, contracting the money supply. That is where we are now.

The Fed’s reliance on the Phillips curve does not withstand scrutiny. But rather than abandoning the model, the Fed cites “transitory factors” to explain away inconsistencies in the data. In a December 2017 article in The Hill, Tate Lacey observed that the Fed has been using this excuse since 2012, citing one “transitory factor” after another, from temporary movements in oil prices to declining import prices and dollar strength, to falling energy prices, to changes in wireless plans and prescription drugs. The excuse is wearing thin.

The Fed also claims that the effects of its monetary policies lag behind the reported data, making the current rate hikes necessary to prevent problems in the future. But as Lacey observes, GDP is not a lagging indicator, and it shows that the Fed’s policy is failing. Over the last two years, leading up to and continuing through the Fed’s tightening cycle, nominal GDP growth averaged just over 3 percent, while in the two previous years, nominal GDP grew at more than 4 percent. Thus “the most reliable indicator of the stance of monetary policy, nominal GDP, is already showing the contractionary impact of the Fed’s policy decisions,” says Lacey, “signaling that its plan will result in further monetary tightening, or worse, even recession.”

The largest U.S. lenders could each make at least $1 billion in additional pretax profit in 2018 from a jump in the London interbank offered rate for dollars, based on data disclosed by the companies. That’s because customers who take out loans are forced to pay more as Libor rises while the banks’ own cost of credit has mostly held steady.

During the 2008 crisis, high LIBOR rates meant capital markets were frozen, since the banks’ borrowing rates were too high for them to turn a profit. But U.S. banks are not dependent on the short-term overseas markets the way they were a decade ago. They are funding much of their operations through deposits, and the average rate paid by the largest U.S. banks on their deposits climbed only about 0.1 percent last year, despite a 0.75 percent rise in the Fed funds rate. Most banks don’t reveal how much of their lending is at variable rates or indexed to LIBOR, but Onaran comments:

JPMorgan Chase & Co., the biggest U.S. bank, said in its 2017 annual report that $122 billion of wholesale loans were at variable rates. Assuming those were all indexed to Libor, the 1.19 percentage-point increase in the rate in the past year would mean $1.45 billion in additional income.

While struggling with ultralow interest rates, major banks have also been publishing regular updates on how well they would do if interest rates suddenly surged upward. … Bank of America … says a 1-percentage-point rise in short-term rates would add $3.29 billion. … [A] back-of-the-envelope calculation suggests an incremental $2.9 billion of extra pretax income in 2017, or 11.5% of the bank’s expected 2016 pretax profit. …

About half of mortgages are … adjusting rate mortgages [ARMs] with trigger points that allow for automatic rate increases, often at much more than the official rate rise. …

One can see why the financial sector is keen for rate rises as they have mined the economy with exploding rate loans and need the consumer to get caught in the minefield.

Even a modest rise in interest rates will send large flows of money to the banking sector. This will be cost-push inflationary as finance is a part of almost everything we do, and the cost of business and living will rise because of it for no gain.

Cost-push inflation will drive up the consumer price index, ostensibly justifying further increases in the interest rate, in a self-fulfilling prophecy in which the FOMC will say: “We tried—we just couldn’t keep up with the CPI.”

A Closer Look at the FOMC

The FOMC is composed of the Federal Reserve’s seven-member Board of Governors, the president of the New York Fed and four presidents from the other 11 Federal Reserve Banks on a rotating basis. All 12 Federal Reserve Banks are corporations, the stock of which is 100 percent owned by the banks in their districts; and New York is the district of Wall Street. The Board of Governors currently has four vacancies, leaving the member banks in majority control of the FOMC. Wall Street calls the shots, and Wall Street stands to make a bundle off rising interest rates.

The Federal Reserve calls itself independent, but it is independent only of government. It marches to the drums of the banks that are its private owners. To prevent another Great Recession or Great Depression, Congress needs to amend the Federal Reserve Act, nationalize the Fed and turn it into a public utility, one that is responsive to the needs of the public and the economy.

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including "Web of Debt" and "The Public Bank Solution."

March 28, 2018

During the banking crisis of 2008, the Federal Reserve bought up the debts of the big banks. They said in effect, "Oh poor Wells Fargo, you have a debt you can't pay? Here take this money and pay it off." Wouldn't it be nice if the Fed did this for average folk. "Oh, you have a car payment you can't make. Here take this money and pay it." Or "Take this money and pay off your student loan." Fat chance the Fed would ever help out the average folk, the hoi polloi. Why? Because the Fed is privately owned by the Big Banks. It is privately owned by Wall Street. It does not represent We the People.

The Fed shoveled money out the door to Wall Street. The government, meaning We the Taxpayers, did also. Treasury Secretary Hank Paulson with his hair on fire demanded the $700 billion TARP bailout. Beyond that the Fed committed to another $29 trillion giveaway to the Big Banks. However, the hoi polloi got foreclosed on right and left. There was no bailout for them. The Home Affordable Modification Program, known as HAMP did little to modify mortgages in favor of the average person.

Chris Cooley never missed a payment on his mortgage in Long Beach, California. Every month, Wells Fargo would debit him $3,100 for the four-unit building; one of the units was his, and the other three he rented out for income to cover the mortgage. In 2009, when the housing crisis hit, Cooley needed a way to reduce his mortgage. He renegotiated his loan through the Home Affordable Modification Program, known as Hamp. Initially, it was a success: his mortgage payments fell in half, to $1,560.

So it was surprising when a ReMax agent, sent on behalf of Wells Fargo, knocked on the door in December 2009 and told Cooley the building no longer belonged to him. The bank planned to take the building he had lived in and rented out for a decade – and list the property for sale.

So much for government help.

But it turned out that Cooley was not getting government help; without his knowledge, Wells Fargo had put him on what was only a trial Hamp payment program. He had been rejected for a permanent mortgage modification – only Wells Fargo never informed him about the rejection, he says, nor did they give him a reason why.

What followed was what most homeowners would consider a nightmare. While Cooley tried to stave off foreclosure to save his home and livelihood, Wells Fargo paid the other renters living in the property $5,000 to move out behind his back, and then denied Cooley further aid – because his income, which he drew from the rentals, was too low. “They took my income away from me, and then they couldn’t give me a loan because I had no income,” Cooley said. “What a wonderful catch-22.”

The bank held his final trial payment in a trust and never applied it to his loan (to this day, Cooley has never received that money back). For two years, Cooley appealed to Wells Fargo for some alternative form of relief, sending in paperwork time and again, talking to different customer service representatives who knew nothing about his situation, and generally running in place without success.

Tired of fighting, Cooley ended up leaving his home, and became just one of the seven million foreclosure victims in the US since the bursting of the housing bubble in 2007.

“Wells Fargo stole my home, plain and simple,” he said.

Nice guys at Wells Fargo. But by now everyone knows they are crooks and scam artists. They have been implicated in scam after illegal scam and fraud after illegal fraud. The only consequences have been multiple slaps on the wrist. A little over 30,000 HAMP modifications from 2009 remain active. That same year there were over one million foreclosures which shows the scale of the problem HAMP failed to fix. But for the banks nothing was too good.

Providing further evidence that the bank deregulation bill currently sailing through the Senate—with the essential help of 12 Democrats and Sen. Angus King (I-Maine)—is more about enriching large financial institutions than helping community banks, the Congressional Budget Office (CBO) estimated in a report unveiled late Monday that the bipartisan measure would exempt big banks from strict regulations and significantly increase the likelihood of future taxpayer bailouts.

"Any Democrat voting to advance this bill ought to just retire and start working directly as a lobbyist for the big banks." —Kurt Walters, Rootstrikers

"A major feature of the bill is exempting about two dozen financial companies with assets between $50 billion and $250 billion from the highest levels of regulatory scrutiny from the Federal Reserve," notes the Washington Post's Jeff Stein, who first reported on the CBO's findings.

According to the CBO, such exemptions would give large institutions—including so-called "too big to fail" banks—more freedom to engage in the kind of risky behavior that led to the 2008 financial crash, thus making them more likely to collapse again.

"This banking bill is a disaster," Sen. Bernie Sanders (I-Vt.) said in a statement responding to the CBO's findings. "The Wall Street crash of 2008 showed the American people how fraudulent many of these large banks are. The last thing we should be doing is deregulating them. Why would any member of Congress vote to move us closer to another taxpayer bailout of large financial institutions?"

Sen. Sherrod Brown (D-Ohio) also seized upon the CBO's report on Monday as confirmation of what the bill's opponents have been saying for months.

The independent budget scorekeeper confirmed what we know – this bank giveaway bill will cost taxpayers. Hardworking Americans shouldn’t have to pay for favors to Wall Street, foreign megabanks and their lobbyists. -SB https://t.co/WqfMWNJOig

With the legislation scheduled for a procedural vote on Tuesday, Kurt Walters, campaign director at the advocacy group Rootstrikers, suggested in a statement on Monday that "any Democrat voting to advance this bill ought to just retire and start working directly as a lobbyist for the big banks."

"The charade is over," Walters added. "The CBO's report just destroyed any case that this bill is 'community banking' legislation. A neutral arbiter just confirmed that this bill would increase the risk of future bank bailouts and gave even odds that it would let Wall Street giants CitiBank and JPMorgan pile on more risk. In what universe does this make sense as policy? In what universe is this what voters are clamoring for?"

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December 05, 2017

In the 2008 financial crisis the central bank of the US, the Federal Reserve, bailed out the big banks with a policy of quantitative easing. That is it effectively printed money and gave it to the banks. It also kept interest rates near zero so the big banks could get all the money they wanted and lend it out at much higher interest rates to the middle class and the poor, thus creating a lot of debt which made banks and bankers rich. Salaries and bonuses related to the financial sector have never been higher while the US middle class and poor have never been mired in more student loan, credit card, car loan and mortgage loan debt.

Jeremy Corbyn, the British labor leader, has suggested quantitative easing for the middle class and poor which would amount to a Universal Basic Income (UBI). Since automation is replacing most of the good paying middle class jobs, it makes sense that, in order to keep the economy running, the Federal Reserve should just shovel some money to those in the 99% or 90%, at least, who have lost those good paying jobs.

But not so fast. First off the Federal Reserve is owned privately by the very banks who have profited from its policies. It is not a true central bank owned by the people. Second, the poor and middle class would spend their UBI on basic things like food, housing, clothes, education etc. This would not profit the big banks. It would take away from their profits because people would not be going into as much debt. Therefore, Wall Street would suffer. They only make money when people go into debt.

In a capitalist society such as the US, there is one alternative for the middle class and poor. In succinct terms it is "Join the Army." The military-industrial complex is huge and almost anybody can get in. They even train you and offer some other incentives. The military-industrial complex is one industry that is not competing with the big banks. So if you lose your good paying middle class job, there are plenty of jobs in the military. The USA trillion dollar defense budget sees to that. And there are plenty of enemies to go around and keep the military busy for years. The only threat is if peace broke out. Then the military-industrial complex and the whole US economy would collapse.

Sen. Elizabeth Warren (D-Mass.) and prominent progressive groups rallied outside Consumer Financial Protection Bureau (CFPB) headquarters on Tuesday to denounce President Donald Trump for placing "himself firmly on the side of Wall Street banks" by attempting to elevate his budget director to the head of the CFPB.

Trump is attempting to deliver "a double kiss to Wall Street this week" by "trying to push forward tax reform that gives a trillion and a half dollars in tax cuts to giant corporations and at the same time, trying to hollow out the Consumer Financial Protection Bureau," Warren argued.

Highlighting the agency's role in holding major financial institutions accountable following the 2008 financial crisis, Warren—one of the bureau's architects—issued an urgent call to action as the CFPB's internal power struggle rages on.

"For six years, this agency has fought to give consumers a chance. For six years, this agency has fought for working people," Warren declared as CFPB employees looked on from their office windows. "And now it's time for us to fight for the agency."

Watch:

As Common Dreams reported on Monday, CFPB deputy director Leandra English has filed a lawsuit against the Trump administration, arguing that the law clearly states she—and not White House budget director Mick Mulvaney—is the rightful acting director of the agency.

In a letter (pdf) addressed to Mulvaney and White House Counsel Don McGahn late Monday, Warren made clear who she thinks is in the right.

"I believe the language of the Dodd-Frank law is clear and that Leandra English, not Mr. Mulvaney, is the legal Acting Director of the agency," Warren wrote.

U.S. District Judge Timothy Kelly, a Trump appointee, was assigned to hear English's lawsuit, but as of this writing has yet to issue a ruling.

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Vice President Mike Pence presiding over the Senate on Capitol Hill in Washington, Tuesday, Feb. 7, 2017, during the Senate's vote on Education Secretary-designate Betsy DeVos. On Tuesday night, Pence returned to the chamber again to a break another tie. This time it was to make sure it's easier in the future for financial service companies and other Wall Street darlies to make it easier to rip-off consumers. (Photo: Senate Television)

"The vice president only shows up in this body when the rich and powerful need him." —Sen. Sherrod Brown (D-Ohio)While in the end it was two Republicans, Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana, who joined with Democrats and the Senate's two Independents in voting against the resolution, Pence broke the 50-50 tie in order to scrap the rule.

Sen. Elizabeth Warren (D-Mass.), an outspoken propopent of the Consumer Financial Protection Bureau's rule which sought to restrict use of forced arbitration clauses, condemned both Pence and her Republican colleagues for trying to undermine consumer protections by delivering a "gift to the bank lobbyists."

"Let's be clear: No organization that represents actual human beings wants the [Senate] to reverse the [CFPB's] arbitration rule," Warren declared in a pair of tweets. "Servicemembers, vets, seniors, and small businesses all support the rule. Only people who don't? Bank lobbyists. Oh, and Equifax."

In a nearly eight-minute speech objecting to the passage of resolution, Warren explained that at a time when "millions of Americans of all parties think Washington is rigged against them," the vote on Tuesday night should be considered "Exhibit A."

Robert Weissman, president of the consumer advocacy group Public Citizen, blasted the Senate Republicans.

"Voting to allow banks and other financial institutions to rip off customers with impunity is a savage attack on American consumers," Weissman said in a statment. By overturning the rule, he continued, Republicans "are ensuring that predatory banks, payday lenders, credit card companies and other bad actors in the financial industry can steal from Main Street

It was during his floor speech against the passage of the resolution when Sen. Sherrod Brown (D-Ohio) learned that Pence had arrived to provide the deciding vote.

"The vice president only shows up in this body," announced Brown, "when the rich and powerful need him."

Both Warren and Weissman suggested killing the rule would be a major betrayal of Trump's repeated promises to "drain the swam" and protect regular Americans from the ravages and greed of Wall Street predators.

"If President Donald Trump wants to remain true to his promise to defeat cronyism, he should veto this resolution," said Weissman. "But we're not holding our breath, given that he has staffed his Cabinet and White House with Goldman Sachs and other Wall Street refugees."

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October 23, 2017

A former Clinton aide writes a love letter to big banks in the New York Times, conveniently forgets the 2008 crash.

By Dean Baker

Photo Credit: Butz.2013 / Flickr Creative Commons

Doug Schoen, a former consultant to Bill Clinton, argued the case that the Democrats should keep their ties to Wall Street in a NYT column this morning. While he does advance his argument with some red-baiting and bad logic, he uses tradition as a starting point.

"Many of the most prominent voices in the Democratic Party, led by Bernie Sanders, are advocating wealth redistribution through higher taxes and Medicare for all, and demonizing banks and Wall Street. "Memories in politics are short, but those policies are vastly different from the program of the party’s traditional center-left coalition. Under Bill Clinton, that coalition balanced the budget, acknowledged the limits of government and protected the essential programs that make up the social safety net.

"President Clinton did this, in part, by moving the party away from a reflexive anti-Wall Street posture. It’s not popular to say so today, but there are still compelling reasons Democrats should strengthen ties to Wall Street."

Of course memories are not actually short, contrary to what Schoen claims. Many supporters of harsher policies directed against the financial sector remember the stock bubble whose crash led to what was at the time, the longest period without job growth since the Great Depression. They also remember a financial sector that continued to run wild as the housing bubble inflated. And they remember the Great Recession that followed the collapse of that bubble. And, they remember the government's bailout policies that ensured that the financial industry types would end up on their feet and not in jail.

But Schoen does go beyond appealing to tradition.

"America is a center-right, pro-capitalist nation. ... Even in May 2016, when Senator Sanders made redistribution a central part of his platform, Gallup found that only about 35 percent of Americans had a positive image of socialism, compared with 60 percent with a positive view of capitalism."

It's good that Schoen found an occasion to denounce "socialism" and tout capitalism. It also has nothing to do with the issue at hand. Very few of the people criticizing Wall Street consider themselves socialists. In fact, many view the waste and corruption of Wall Street as being an obstacle to a more efficient productive capitalist economy. Given the enormous damage caused by the collapse of the last two Wall Street driven bubbles, there is a pretty good case here.

October 12, 2017

Los Angeles is considering the formation of a public bank so that the cannabis industry has some place to deposit their money. Since cannabis is illegal at the Federal level, Wall Street banks like Wells Fargo cannot accept their money as deposits. However, since cannabis is legal at the state level in some states like California, a public bank similar to the Public Bank of North Dakota which is wholly state owned is the logical solution.

The Bank of North Dakota, the only publicly owned bank in the country, has paid $85 million into various state government funds over the last four years, according to its most recent annual report. It makes low-interest student loans and farm loans and helps finance local public-works projects, all priorities set by state leaders.

So instead of sending city or state deposits off to Wall Street banks like Wells Fargo which have been shown to be fraudulent and which play games with pension fund money including siphoning it off for their own benefit, why not keep the money in the state for the purposes of benefiting the people of the state.

One of the key questions surrounding the establishment of a public bank is how to capitalize it. This would seem to be solved initially by taking deposits from the cannabis industry. After the bank was established other deposits from city and state tax revenues could be deposited in the public bank without Wall Street taking a cut. There is also the question of Federal institutions and oversight that would be denied to a bank taking cannabis money. They could mainly be gotten around except for one. To be able to process checks, wire transfers and electronic payments — in other words, to interact with the rest of the financial system — banks must have an account with one of the nation’s 12 regional Federal Reserve banks. That conundrum remains to be solved unless the Federal Reserve Bank of San Francisco, the central bank for California and eight other western states, decides to accept LA's application even if it accepts cannabis money.

Ellen Brown, author of The Public Bank Solution and Web of Debt is considered the foremost expert in this field and several cities and states are actively looking into the establishment of public banks to serve the people of their respective jurisdictions and cut out Wall Street profits.

October 02, 2017

Screwy Capitalism: When a Hedge Fund Runs a Profitable Company into Bankruptcy

by John Lawrence

Hedge funds are leveraged buyout artists. They borrow huge sums of money in order to buy up all the outstanding stock of some company. Then they make that company, not the hedge fund, responsible for repaying the debt. In many cases they can't do it and so go bankrupt. Meanwhile, the hedge fund managers have paid themselves handsomely out of the borrowed money which again is money owed to Wall Street banks by the company not the hedge fund managers. Another name for hedge funds is private equity funds. The game is the same. Borrow in such a way that the borrowers are not responsible for the debt. This is not what capitalism is all about, but is what it's morphed into.

Instead of investors taking risk, the useful work of private equity, they make risk for others, what John MacIntosh called its malevolent doppelganger. After stripping the company of any asset that can be stuffed into the pockets of the hedge fund or private equity managers, the risk associated with the weakened company is largely borne by its employees, suppliers and customers who get little (if anything) in return.

This is exactly what happened to Toys R Us recently. The Toys "R" Us debacle began in 2005 when private equity firms bought the company for $7.5 billion. Over the last 12 years, this original "take private" deal has probably sucked more than $5 billion out of the company: $470 million in "advisory" fees and interest to the private equity firms and $4.8 billion ($400 million per year for 12 years) in interest on the acquisition debt plus the tens of millions of dollars in legal fees Toys "R" Us will spend in bankruptcy. (It's ironic that the investors who bankrupted the company won't be paying any of these fees.) Yet despite a tough retail environment, Toys "R" Us actually made $460 million from selling toys in 2016 but that didn't help much since all of it -- 100% -- went to pay interest on the debt.

The media portrays the Toys R Us bankruptcy as the plight of brick and mortar stores being handed their lunch by online retailers such as Amazon. Nothing could be further from the truth. The bankruptcy had to do with a transfer of money from the 99% such as the employees and suppliers to the 1%, the bankers, lawyers and financiers. Since all the interest paid was tax deductable, taxpayers also got screwed.

The extreme perversity of this situation is that the borrowers of money are not on the hook to pay it back. If you borrow money to buy a car or a house, you are on the hook. Not so when the borrowed money is used to buy a company. The limited liability corporate structure developed in the mid-19th century as a "corporate veil" to encourage investors to put money into companies is what allows investors to take money out without being on the hook. This law can and should be changed so that hedge and private equity funds cannot bankrupt companies, load them with debt, screw the employees, make them take less in wages, destroy their unions and raid the pension funds. A country that allows this to happen is intent on increasing the economic divide between rich and poor.

These leveraged buyout artists are nothing but parasites preying on and destroying companies for their own profits. They do nothing constructive in the process!

A sane economic system would not let this happen. You can have a system which encourages entrepreneurship and economic growth without the perverse economic ramifications of American capitalism.

A resident surveys her neighborhood as people deal with the aftermath of Hurricane Maria on September 27, 2017 in Corozal, Puerto Rico. (Photo: Joe Raedle/Getty Images)

While Wall Street vultures circle amid an ongoing humanitarian crisis and try to entice Puerto Rico with "relief" offers in the form of more debt, advocates for economic justice are demanding immediate debt relief and federal stimulus spending to rebuild the island's devastated infrastructure.

"For the president to bring up Puerto Rico's economic crisis and its debt to corporate America during a time of tremendous suffering is shocking, even for Trump. The fact that he accompanied this statement with very little action to actually help Puerto Ricans intensified the cruelty of his words." - Sonali Kolhatkar, Truthdig

"Puerto Rico needs immediate humanitarian assistance before many more lives are lost thanks to America's latest climate catastrophe, and reconstruction aid to help them rebuild their infrastructure," Wenonah Hauter, executive director of Food & Water Watch, wrote for Common Dreams on Friday. She continued:

The hurricane only made a bad situation much, much worse: Puerto Rico has been reeling from austerity measures for years that were put in place by Wall Street, which has been calling to recoup the debt. One of Donald Trump's first responses to the mounting humanitarian crisis was to remind people of the "billions of dollars" the territory owes to the bank, "which must be dealt with"—signaling what the priorities will be.

"Instead, we should consider forgiving Puerto Rico's debt and federally fund its reconstruction," Hauter added. "It's important to demand federal funding for our precious water infrastructure before disasters happen as well; indeed, this funding was cut off to Puerto Rico because of its debt, making a bad situation much worse when the hurricane hit."

Since Hurricane Maria struck the island last week, nearly half of the commonwealth's 3.4 million residents remain without access to potable water and 97 percent remain without electricity—which its governer has warned may not be fully restored for up to six months.

Meanwhile, President Donald Trump, as Common Dreams reported Tuesday, has continuously offered assurance that the recovery efforts are "doing well" while also suggesting the government can offer only limited assistance because of Puerto Rico's debts.

September 04, 2017

Remember Michael Milken, the "junk bond king" who was prosecuted in the '80s for violating US securities laws? Milken was sentenced to ten years in prison, fined $600 million, and permanently barred from the securities industry by the Securities and Exchange Commission. His sentence was later reduced to two years for cooperating with testimony against his former colleagues and for good behavior. Milken was an innovator in the financial field which hadn't been so totally deregulated at the time so that some of his practices, that would be perfectly OK today, were considered illegal at that time.

Whatever Milken did that was illegal in the 80s is considered perfectly legal today. However, many think he was prosecuted because his company, Drexel, Burnham, Lambert was a symbol of Wall Street greed. Milken made tremendous amounts of money, $550 million in 1987 alone. Now he or his frinds are seeking a pardon from President Trump. It'll probably happen. That would allow Milken to get back into the securities game with a clean bill of slate.

It is to be noted that everyone's favorite company, Tesla, recently raised $1.5 billion to fund production of its more affordable electric car, the Model 3, by selling junk bonds. Also remember all those junk mortgages that caused the Great Recession of 2008? Wall Street was totally bailed out and exonerated for doing basically the same things that Milken went to jail for. Nobody went to jail in 2008, and the Fed took a whole lot of junk on its balance sheet in order to get the economy functioning again.

"It's an ironic climax to 40 years of controversy over high-yield debt," David Bahnsen of the Bahnsen Group, which services wealthy individuals and institutions, said. " You have this socially responsible, environmentally friendly company raising money by using an instrument that would not exist if not for the innovation of Michael Milken."

Yes, Michael Milken was a pioneer of the financialization of the economy and a precursor of the now-set-in-stone principal that Wall Street greed is a public service. Deregulation by the Clinton administration made what was illegal in the 80s legal in the 90s and thereafter. It made the dependence of the Democratic party on Wall Street part of the mix which enabled the fantastic wealth accumulation by the 1% at the expense of the 99% possible. And don't forget all those $250,000. speeches Hillary Clinton gave to Wall Street executives.